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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
MGE in Focus
Based in Madison, MGE (MGEE) is in the Utilities sector, and so far this year, shares have seen a price change of -20.72%. Currently paying a dividend of $0.37 per share, the company has a dividend yield of 2.37%. In comparison, the Utility - Electric Power industry's yield is 3.51%, while the S&P 500's yield is 1.66%.
Looking at dividend growth, the company's current annualized dividend of $1.48 is up 7.2% from last year. MGE has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.42%. 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. MGE's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
MGEE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $2.62 per share, with earnings expected to increase 4.38% 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. But, not every company offers 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 MGEE is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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MGE Energy Inc. (MGEE) : Free Stock Analysis Report
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