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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
PPL in Focus
PPL (PPL - Free Report) is headquartered in Allentown, and is in the Utilities sector. The stock has seen a price change of 3.8% since the start of the year. The energy and utility holding company is currently shelling out a dividend of $5.43 per share, with a dividend yield of 68%. This compares to the Utility - Electric Power industry's yield of 4% and the S&P 500's yield of 0.41%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.51 is up 2.1% from last year. PPL has increased its dividend 3.80 times on a year-over-year basis over the last 5 years for an average annual increase of 4%. 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. PPL's current payout ratio is -2.49%. This means it paid out -2.49% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PPL expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.64 per share, representing a year-over-year earnings growth rate of 2.45%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, PPL 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).