Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Consolidated Water in Focus
Based in Grand Cayman, Consolidated Water (CWCO - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -0.24%. The developer and operator of desalination plants is paying out a dividend of $0.09 per share at the moment, with a dividend yield of 2.7% compared to the Utility - Water Supply industry's yield of 1.98% and the S&P 500's yield of 2.02%.
Looking at dividend growth, the company's current annualized dividend of $0.34 is up 51.1% from last year. Over the last 5 years, Consolidated Water has increased its dividend 1 times on a year-over-year basis for an average annual increase of 1.94%. 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. Consolidated Water's current payout ratio is 61%, meaning it paid out 61% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CWCO for this fiscal year. The Zacks Consensus Estimate for 2018 is $0.58 per share, representing a year-over-year earnings growth rate of 18.37%.
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.
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. With that in mind, CWCO is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).