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.
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.
Exelon in Focus
Exelon (EXC - Free Report) is headquartered in Chicago, and is in the Utilities sector. The stock has seen a price change of 8% since the start of the year. Currently paying a dividend of $0.36 per share, the company has a dividend yield of 2.98%. In comparison, the Utility - Electric Power industry's yield is 2.93%, while the S&P 500's yield is 2.02%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.45 is up 5.1% from last year. In the past five-year period, Exelon has increased its dividend 3 times on a year-over-year basis for an average annual increase of 3.12%. 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. Exelon's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for EXC for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.13 per share, which represents a year-over-year growth rate of 0.32%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, EXC 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).