Back to top

Image: Bigstock

Is Western Gas Partners, LP (WES) a Great Dividend Play?

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 for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Western Gas Partners, LP in Focus

Headquartered in The Woodlands, Western Gas Partners, LP (WES - Free Report) is an Oils-Energy stock that has seen a price change of 6.22% so far this year. The company is currently shelling out a dividend of $0.94 per share, with a dividend yield of 7.32%. This compares to the Oil and Gas - Production and Pipelines industry's yield of 5.56% and the S&P 500's yield of 1.79%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.74 is up 5.9% from last year. In the past five-year period, Western Gas Partners, LP has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.46%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Western Gas Partners, LP's current payout ratio is 224%. This means it paid out 224% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, WES expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $2.24 per share, which represents a year-over-year growth rate of 72.31%.

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.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, WES presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


In-Depth Zacks Research for the Tickers Above


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


Western Midstream Partners, LP (WES) - free report >>