Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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.
Consolidated Water in Focus
Consolidated Water (CWCO - Free Report) is headquartered in Grand Cayman, and is in the Utilities sector. The stock has seen a price change of 9.52% since the start of the year. The developer and operator of desalination plants is paying out a dividend of $0.09 per share at the moment, with a dividend yield of 2.46% compared to the Utility - Water Supply industry's yield of 2.08% and the S&P 500's yield of 1.81%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.34 is up 51.1% from last year. In the past five-year period, Consolidated Water has increased its dividend 1 times on a year-over-year basis for an average annual increase of 1.36%. 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. Consolidated Water's current payout ratio is 61%. This means it paid out 61% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CWCO for this fiscal year. The Zacks Consensus Estimate for 2018 is $0.60 per share, with earnings expected to increase 22.45% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CWCO 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).