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 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.
CenterPoint Energy in Focus
Based in Houston, CenterPoint Energy (CNP - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -1.59%. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 3.98%. In comparison, the Utility - Electric Power industry's yield is 3.3%, while the S&P 500's yield is 1.79%.
Looking at dividend growth, the company's current annualized dividend of $1.11 is up 3.7% from last year. CenterPoint Energy has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.59%. 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. CenterPoint's current payout ratio is 71%. This means it paid out 71% of its trailing 12-month EPS as dividend.
CNP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.60 per share, which represents a year-over-year growth rate of 16.79%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 CNP is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).