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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Essential Utilities in Focus
Based in Bryn Mawr, Essential Utilities (WTRG) is in the Utilities sector, and so far this year, shares have seen a price change of -15.25%. The water utility is paying out a dividend of $0.25 per share at the moment, with a dividend yield of 2.52% compared to the Utility - Water Supply industry's yield of 1.88% and the S&P 500's yield of 1.66%.
Looking at dividend growth, the company's current annualized dividend of $1 is up 10.3% from last year. In the past five-year period, Essential Utilities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.81%. 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 55%, meaning it paid out 55% 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. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that WTRG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
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