Back to top

Image: Bigstock

American Water Works (AWK) is a Top Dividend Stock Right Now: Should You Buy?

Read MoreHide Full Article

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

American Water Works in Focus

Headquartered in Camden, American Water Works (AWK - Free Report) is a Utilities stock that has seen a price change of -8.8% so far this year. The water utility is currently shelling out a dividend of $0.71 per share, with a dividend yield of 2.35%. This compares to the Utility - Water Supply industry's yield of 2.36% and the S&P 500's yield of 1.56%.

In terms of dividend growth, the company's current annualized dividend of $2.83 is up 1.9% from last year. In the past five-year period, American Water Works has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.72%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. American Water Works's current payout ratio is 58%. This means it paid out 58% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, AWK expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $5.22 per share, which represents a year-over-year growth rate of 6.53%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that AWK is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

American Water Works Company, Inc. (AWK) - free report >>

Published in