Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
MPLX LP in Focus
Headquartered in Findlay, MPLX LP (MPLX) is an Oils-Energy stock that has seen a price change of 8.09% so far this year. Currently paying a dividend of $0.65 per share, the company has a dividend yield of 7.91%. In comparison, the Oil and Gas - Production and Pipelines industry's yield is 5.19%, while the S&P 500's yield is 1.97%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.59 is up 4% from last year. Over the last 5 years, MPLX LP has increased its dividend 5 times on a year-over-year basis for an average annual increase of 16.21%. 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. MPLX LP's current payout ratio is 120%, meaning it paid out 120% of its trailing 12-month EPS as dividend.
MPLX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.55 per share, with earnings expected to increase 11.35% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MPLX 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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