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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Southwest Gas in Focus
Based in Las Vegas, Southwest Gas (SWX - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 16.22%. The natural gas company is currently shelling out a dividend of $0.55 per share, with a dividend yield of 2.45%. This compares to the Utility - Gas Distribution industry's yield of 2.66% and the S&P 500's yield of 1.86%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.18 is up 6.1% 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 9.09%. 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. Right now, Southwest Gas's payout ratio is 54%, which means it paid out 54% of its trailing 12-month EPS as dividend.
SWX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.92 per share, which represents a year-over-year growth rate of 6.52%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. 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, SWX presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).