Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Chesapeake Utilities in Focus
Headquartered in Dover, Chesapeake Utilities (CPK - Free Report) is a Utilities stock that has seen a price change of -24.5% so far this year. The energy and utility company is paying out a dividend of $0.41 per share at the moment, with a dividend yield of 2.24% compared to the Utility - Gas Distribution industry's yield of 3.92% and the S&P 500's yield of 2.82%.
Looking at dividend growth, the company's current annualized dividend of $1.62 is up 2.2% from last year. Chesapeake Utilities has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.89%. 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. Chesapeake Utilities's current payout ratio is 45%, meaning it paid out 45% of its trailing 12-month EPS as dividend.
CPK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.01 per share, which represents a year-over-year growth rate of 9.56%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, CPK 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).