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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Southwest Gas in Focus
Southwest Gas (SWX - Free Report) is headquartered in Las Vegas, and is in the Utilities sector. The stock has seen a price change of 7.66% since the start of the year. The natural gas company is paying out a dividend of $0.52 per share at the moment, with a dividend yield of 2.53% compared to the Utility - Gas Distribution industry's yield of 2.56% and the S&P 500's yield of 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.08 is up 1.2% from last year. In the past five-year period, Southwest Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.14%. 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. Southwest Gas's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SWX expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.90 per share, representing a year-over-year earnings growth rate of 5.98%.
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. That said, they can take comfort from the fact that SWX is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).