Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
El Paso Electric in Focus
Based in El Paso, El Paso Electric is in the Utilities sector, and so far this year, shares have seen a price change of 31.98%. The utility is currently shelling out a dividend of $0.38 per share, with a dividend yield of 2.33%. This compares to the Utility - Electric Power industry's yield of 2.89% and the S&P 500's yield of 1.88%.
In terms of dividend growth, the company's current annualized dividend of $1.54 is up 8.8% from last year. In the past five-year period, El Paso Electric has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.69%. 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. El Paso Electric's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for EE for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.62 per share, representing a year-over-year earnings growth rate of 12.45%.
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.
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 EE is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).