All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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.
National Fuel Gas in Focus
Based in Williamsville, National Fuel Gas (NFG - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 10.73%. The energy company is currently shelling out a dividend of $0.43 per share, with a dividend yield of 3%. This compares to the Utility - Gas Distribution industry's yield of 2.59% and the S&P 500's yield of 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.70 is up 1.2% from last year. In the past five-year period, National Fuel Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.41%. 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. National Fuel Gas's current payout ratio is 50%. This means it paid out 50% of its trailing 12-month EPS as dividend.
NFG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.55 per share, which represents a year-over-year growth rate of 6.29%.
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. 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 NFG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).