All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
National Fuel Gas in Focus
National Fuel Gas (NFG - Free Report) is headquartered in Williamsville, and is in the Utilities sector. The stock has seen a price change of -0.38% since the start of the year. The energy company is paying out a dividend of $0.43 per share at the moment, with a dividend yield of 3.11% compared to the Utility - Gas Distribution industry's yield of 2.67% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.70 is up 1.2% from last year. Over the last 5 years, National Fuel Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.59%. Future dividend growth will depend on earnings growth as well as 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 51%. This means it paid out 51% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for NFG for this fiscal year. The Zacks Consensus Estimate for 2018 is $3.41 per share, which represents a year-over-year growth rate of 2.10%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, NFG 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).