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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Chevron in Focus
Chevron (CVX - Free Report) is headquartered in San Ramon, and is in the Oils-Energy sector. The stock has seen a price change of -2.32% since the start of the year. The oil company is paying out a dividend of $1.12 per share at the moment, with a dividend yield of 3.66% compared to the Oil and Gas - Integrated - International industry's yield of 2.53% and the S&P 500's yield of 1.8%.
Looking at dividend growth, the company's current annualized dividend of $4.48 is up 3.7% from last year. Chevron has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 1.70%. 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, Chevron's payout ratio is 82%, which means it paid out 82% of its trailing 12-month EPS as dividend.
CVX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $8.17 per share, representing a year-over-year earnings growth rate of 120.81%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that CVX is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).