Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
PSEG in Focus
Headquartered in Newark, PSEG (PEG - Free Report) is a Utilities stock that has seen a price change of 12.47% so far this year. The parent company of PSEG Power and Public Service Electric & Gas Co. Is currently shelling out a dividend of $0.47 per share, with a dividend yield of 3.21%. This compares to the Utility - Electric Power industry's yield of 2.89% and the S&P 500's yield of 1.92%.
In terms of dividend growth, the company's current annualized dividend of $1.88 is up 4.4% from last year. Over the last 5 years, PSEG has increased its dividend 4 times on a year-over-year basis for an average annual increase of 4.99%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. PSEG's current payout ratio is 58%. This means it paid out 58% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PEG for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.24 per share, with earnings expected to increase 3.85% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. 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, PEG 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).