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.
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.
Edison International in Focus
Headquartered in Rosemead, Edison International (EIX - Free Report) is a Utilities stock that has seen a price change of 11.77% so far this year. The electric power provider is currently shelling out a dividend of $0.61 per share, with a dividend yield of 3.86%. This compares to the Utility - Electric Power industry's yield of 2.89% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $2.45 is up 0.9% from last year. Over the last 5 years, Edison International has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.58%. 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. Edison International's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
EIX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.53 per share, which represents a year-over-year growth rate of 9.16%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, EIX 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).