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 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.
Spire in Focus
Headquartered in St Louis, Spire (SR - Free Report) is a Utilities stock that has seen a price change of -2.01% so far this year. The natural gas distributor is paying out a dividend of $0.59 per share at the moment, with a dividend yield of 3.22% compared to the Utility - Gas Distribution industry's yield of 2.68% and the S&P 500's yield of 2.16%.
Looking at dividend growth, the company's current annualized dividend of $2.37 is up 5.3% from last year. Over the last 5 years, Spire has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.18%. 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. Spire's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.
SR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3.75 per share, representing a year-over-year earnings growth rate of 0.81%.
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.
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. That said, they can take comfort from the fact that SR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).