Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Southwest Gas in Focus
Southwest Gas (SWX - Free Report) is headquartered in Las Vegas, and is in the Utilities sector. The stock has seen a price change of 19.18% since the start of the year. Currently paying a dividend of $0.55 per share, the company has a dividend yield of 2.39%. In comparison, the Utility - Gas Distribution industry's yield is 2.71%, while the S&P 500's yield is 1.88%.
Looking at dividend growth, the company's current annualized dividend of $2.18 is up 6.1% from last year. Southwest Gas has increased its dividend 5 times on a year-over-year basis over the last 5 years 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 58%, which means it paid out 58% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SWX expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $3.93 per share, representing a year-over-year earnings growth rate of 6.79%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SWX 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).