All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
ONE Gas in Focus
Headquartered in Tulsa, ONE Gas (OGS - Free Report) is a Utilities stock that has seen a price change of -9.63% so far this year. Currently paying a dividend of $0.54 per share, the company has a dividend yield of 2.55%. In comparison, the Utility - Gas Distribution industry's yield is 2.81%, while the S&P 500's yield is 2.18%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.16 is up 8% from last year. Over the last 5 years, ONE Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.27%. 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. ONE Gas's current payout ratio is 57%. This means it paid out 57% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for OGS for this fiscal year. The Zacks Consensus Estimate for 2020 is $3.61 per share, representing a year-over-year earnings growth rate of 2.85%.
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.
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. With that in mind, OGS 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).