Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Aqua America in Focus
Headquartered in Bryn Mawr, Aqua America (WTR - Free Report) is a Utilities stock that has seen a price change of -5.94% so far this year. The water utility is currently shelling out a dividend of $0.22 per share, with a dividend yield of 2.37%. This compares to the Utility - Water Supply industry's yield of 2.07% and the S&P 500's yield of 1.79%.
In terms of dividend growth, the company's current annualized dividend of $0.88 is up 11.1% from last year. Aqua America has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.67%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Aqua America's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
WTR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.40 per share, with earnings expected to increase 2.19% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. 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 WTR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).