All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Sempra in Focus
Based in San Diego, Sempra (SRE - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -17.61%. The natural gas and electricity provider is currently shelling out a dividend of $1.04 per share, with a dividend yield of 3.35%. This compares to the Utility - Gas Distribution industry's yield of 2.93% and the S&P 500's yield of 2.13%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.18 is up 8% from last year. Over the last 5 years, Sempra has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.56%. 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. Sempra's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
SRE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $7.17 per share, which represents a year-over-year growth rate of 5.75%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that SRE is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).