Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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.
Spire in Focus
Headquartered in St Louis, Spire (SR - Free Report) is a Utilities stock that has seen a price change of 13.65% 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 2.82% compared to the Utility - Gas Distribution industry's yield of 2.56% and the S&P 500's yield of 1.86%.
Looking at dividend growth, the company's current annualized dividend of $2.37 is up 5.3% from last year. Spire has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.67%. 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. Right now, Spire's payout ratio is 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.
SR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.73 per share, with earnings expected to increase 0.27% from the year ago period.
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.
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, SR 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).