Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
PPL in Focus
Based in Allentown, PPL (PPL - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -7.14%. The energy and utility holding company is currently shelling out a dividend of $0.41 per share, with a dividend yield of 5.71%. This compares to the Utility - Electric Power industry's yield of 3.24% and the S&P 500's yield of 1.8%.
Looking at dividend growth, the company's current annualized dividend of $1.64 is up 3.8% from last year. PPL has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 2.13%. 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. Right now, PPL's payout ratio is 68%, which means it paid out 68% of its trailing 12-month EPS as dividend.
PPL is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.34 per share, which represents a year-over-year growth rate of 4%.
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.
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, 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).