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 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.
South Jersey Industries in Focus
Based in Folsom, South Jersey Industries (SJI - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 15.69%. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 3.1%. In comparison, the Utility - Gas Distribution industry's yield is 2.58%, while the S&P 500's yield is 1.83%.
Looking at dividend growth, the company's current annualized dividend of $1.12 is up 2% from last year. In the past five-year period, South Jersey Industries has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.63%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, South Jersey Industries's payout ratio is 63%, which means it paid out 63% of its trailing 12-month EPS as dividend.
SJI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.60 per share, with earnings expected to increase 30.08% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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 SJI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).