Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Dominion Energy in Focus
Based in Richmond, Dominion Energy (D - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -12.79%. The energy company is currently shelling out a dividend of $0.83 per share, with a dividend yield of 4.72%. This compares to the Utility - Electric Power industry's yield of 3.3% and the S&P 500's yield of 1.81%.
Looking at dividend growth, the company's current annualized dividend of $3.34 is up 10% from last year. In the past five-year period, Dominion Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.44%. 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. Dominion Energy's current payout ratio is 85%, meaning it paid out 85% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, D expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $4.13 per share, representing a year-over-year earnings growth rate of 14.72%.
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 must be conscious 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 D is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).