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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 16.34% since the start of the year. 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 2.65% and the S&P 500's yield of 1.9%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.18 is up 6.1% from last year. Over the last 5 years, Southwest Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.77%. 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. Southwest Gas's current payout ratio is 58%, meaning 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 $4.02 per share, which represents a year-over-year growth rate of 9.24%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).