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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Middlesex Water in Focus
Middlesex Water (MSEX - Free Report) is headquartered in Iselin, and is in the Utilities sector. The stock has seen a price change of 12.35% since the start of the year. Currently paying a dividend of $0.22 per share, the company has a dividend yield of 2%. In comparison, the Utility - Water Supply industry's yield is 2.05%, while the S&P 500's yield is 1.76%.
Looking at dividend growth, the company's current annualized dividend of $0.89 is up 3.7% from last year. In the past five-year period, Middlesex Water has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.95%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Middlesex Water's payout ratio is 57%, which means it paid out 57% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MSEX for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.84 per share, which represents a year-over-year growth rate of 33.33%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MSEX presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).