Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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.
Eversource Energy in Focus
Headquartered in Springfield, Eversource Energy (ES) is a Utilities stock that has seen a price change of -1.58% so far this year. Currently paying a dividend of $0.5 per share, the company has a dividend yield of 3.25%. In comparison, the Utility - Electric Power industry's yield is 3.27%, while the S&P 500's yield is 1.93%.
In terms of dividend growth, the company's current annualized dividend of $2.02 is up 6.3% from last year. Eversource Energy has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.60%. 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. Eversource's current payout ratio is 64%, meaning it paid out 64% of its trailing 12-month EPS as dividend.
ES is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3.26 per share, representing a year-over-year earnings growth rate of 4.82%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 ES 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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Eversource Energy (ES) : Free Stock Analysis Report
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