Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Eversource Energy in Focus
Eversource Energy (ES - Free Report) is headquartered in Springfield, and is in the Utilities sector. The stock has seen a price change of -2.63% since the start of the year. The New England power provider is paying out a dividend of $0.5 per share at the moment, with a dividend yield of 3.28% compared to the Utility - Electric Power industry's yield of 3.3% and the S&P 500's yield of 1.79%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.02 is up 6.3% from last year. In the past five-year period, Eversource Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.60%. 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. Eversource's current payout ratio is 64%, meaning it paid out 64% of its trailing 12-month EPS as dividend.
ES is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3.25 per share, representing a year-over-year earnings growth rate of 4.50%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that ES is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).