Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
NorthWestern in Focus
NorthWestern (NWE - Free Report) is headquartered in Sioux Falls, and is in the Utilities sector. The stock has seen a price change of 15.41% since the start of the year. The electric and gas utility is currently shelling out a dividend of $0.57 per share, with a dividend yield of 3.35%. This compares to the Utility - Electric Power industry's yield of 2.98% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $2.30 is up 4.5% from last year. NorthWestern has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.32%. 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. NorthWestern's current payout ratio is 60%, meaning it paid out 60% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NWE expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.55 per share, with earnings expected to increase 4.72% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. With that in mind, NWE 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).