All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
Sabesp in Focus
Sabesp (SBS - Free Report) is headquartered in Sp, and is in the Utilities sector. The stock has seen a price change of 46.96% since the start of the year. The waste management company is currently shelling out a dividend of $0.24 per share, with a dividend yield of 2.04%. This compares to the Utility - Water Supply industry's yield of 1.85% and the S&P 500's yield of 1.87%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.24 is up 9.6% from last year. Sabesp has increased its dividend 2 times on a year-over-year basis over the last 5 years for an average annual increase of 6.69%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Sabesp's payout ratio is 19%, which means it paid out 19% of its trailing 12-month EPS as dividend.
SBS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.16 per share, with earnings expected to increase 6.42% 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.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that SBS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).