Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Shell Oil in Focus
Based in The Hague, Shell Oil (RDS.A - Free Report) is in the Oils-Energy sector, and so far this year, shares have seen a price change of 1.21%. The oil and gas company is currently shelling out a dividend of $0.8 per share, with a dividend yield of 4.73%. This compares to the Oil and Gas - Integrated - International industry's yield of 2.48% and the S&P 500's yield of 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.20 is up 0.1% from last year. Over the last 5 years, Shell Oil has increased its dividend 1 times on a year-over-year basis for an average annual increase of 0.67%. 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. Shell Oil's current payout ratio is 72%. This means it paid out 72% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for RDS.A for this fiscal year. The Zacks Consensus Estimate for 2018 is $5.71 per share, which represents a year-over-year growth rate of 48.70%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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 RDS.A is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).