All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Essential Utilities in Focus
Headquartered in Bryn Mawr, Essential Utilities (WTRG) is a Utilities stock that has seen a price change of -2.68% so far this year. The water utility is currently shelling out a dividend of $0.23 per share, with a dividend yield of 2.05%. This compares to the Utility - Water Supply industry's yield of 1.73% and the S&P 500's yield of 1.69%.
Looking at 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 6.81%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Essential Utilities's current payout ratio is 55%. This means it paid out 55% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, WTRG expects solid earnings growth. 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. 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 have to be mindful 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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