Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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.
PGE in Focus
Based in Portland, PGE (POR - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 2.19%. The electric utility is currently shelling out a dividend of $0.36 per share, with a dividend yield of 3.11%. This compares to the Utility - Electric Power industry's yield of 3.24% and the S&P 500's yield of 1.88%.
Looking at dividend growth, the company's current annualized dividend of $1.45 is up 8.2% from last year. In the past five-year period, PGE has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.29%. 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. PGE's current payout ratio is 62%. This means it paid out 62% of its trailing 12-month EPS as dividend.
POR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.35 per share, which represents a year-over-year growth rate of 2.62%.
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.
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. 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 POR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).