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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
NorthWestern in Focus
Headquartered in Sioux Falls, NorthWestern (NWE) is a Utilities stock that has seen a price change of 19.43% so far this year. The electric and gas utility is paying out a dividend of $0.57 per share at the moment, with a dividend yield of 3.24% compared to the Utility - Electric Power industry's yield of 2.92% and the S&P 500's yield of 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.30 is up 4.5% from last year. NorthWestern has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.32%. 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. Right now, NorthWestern's payout ratio is 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.
NWE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $3.55 per share, which represents a year-over-year growth rate of 4.72%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. 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, NWE 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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NorthWestern Corporation (NWE) : Free Stock Analysis Report
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