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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
National Fuel Gas in Focus
Headquartered in Williamsville, National Fuel Gas (NFG - Free Report) is a Utilities stock that has seen a price change of -6.79% so far this year. The energy company is currently shelling out a dividend of $0.43 per share, with a dividend yield of 3.32%. This compares to the Utility - Gas Distribution industry's yield of 2.66% and the S&P 500's yield of 1.91%.
In terms of dividend growth, the company's current annualized dividend of $1.70 is up 1.2% from last year. National Fuel Gas has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 2.59%. 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. National Fuel Gas's current payout ratio is 50%. This means it paid out 50% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NFG expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.46 per share, which represents a year-over-year growth rate of 3.59%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. That said, they can take comfort from the fact that NFG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).