All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Enterprise Products Partners in Focus
Enterprise Products Partners (EPD - Free Report) is headquartered in Houston, and is in the Oils-Energy sector. The stock has seen a price change of 10.19% since the start of the year. The provider of midstream energy services is paying out a dividend of $0.43 per share at the moment, with a dividend yield of 5.89% compared to the Oil and Gas - Production Pipeline - MLB industry's yield of 6.91% and the S&P 500's yield of 1.77%.
In terms of dividend growth, the company's current annualized dividend of $1.72 is up 3.1% from last year. In the past five-year period, Enterprise Products Partners has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.93%. 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, Enterprise Products's payout ratio is 113%, which means it paid out 113% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for EPD for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.59 per share, representing a year-over-year earnings growth rate of 20.45%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 EPD is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).