Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Essential Utilities in Focus
Based in Bryn Mawr, Essential Utilities (WTRG - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -16.68%. Currently paying a dividend of $0.23 per share, the company has a dividend yield of 2.4%. In comparison, the Utility - Water Supply industry's yield is 2.15%, while the S&P 500's yield is 2.21%.
In terms of dividend growth, the company's current annualized dividend of $0.94 is up 3.6% from last year. Essential Utilities has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.21%. 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. Essential Utilities's current payout ratio is 52%. This means it paid out 52% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WTRG for this fiscal year. The Zacks Consensus Estimate for 2020 is $1.56 per share, with earnings expected to increase 6.12% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, WTRG 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).