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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 -14.83%. The public utility holding company is currently shelling out a dividend of $0.35 per share, with a dividend yield of 2.1%. This compares to the Utility - Electric Power industry's yield of 3.38% and the S&P 500's yield of 1.69%.
Looking at dividend growth, the company's current annualized dividend of $1.41 is up 2.2% from last year. Over the last 5 years, MGE has increased its dividend 5 times on a year-over-year basis 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 $2.52 per share, representing a year-over-year earnings growth rate of 0.40%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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. With that in mind, MGEE is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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MGE Energy Inc. (MGEE) : Free Stock Analysis Report
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