All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Middlesex Water in Focus
Headquartered in Iselin, Middlesex Water (MSEX - Free Report) is a Utilities stock that has seen a price change of 9.3% so far this year. The water utility is currently shelling out a dividend of $0.22 per share, with a dividend yield of 2.05%. This compares to the Utility - Water Supply industry's yield of 2.06% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.89 is up 3.7% from last year. In the past five-year period, Middlesex Water has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.12%. 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. Middlesex Water's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MSEX expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.84 per share, with earnings expected to increase 33.33% 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. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MSEX 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).