Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
PSEG in Focus
Based in Newark, PSEG (PEG) is in the Utilities sector, and so far this year, shares have seen a price change of 8.89%. Currently paying a dividend of $0.51 per share, the company has a dividend yield of 3.21%. In comparison, the Utility - Electric Power industry's yield is 2.84%, while the S&P 500's yield is 1.28%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.04 is up 4.1% from last year. In the past five-year period, PSEG has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.54%. 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. PSEG's current payout ratio is 57%. This means it paid out 57% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PEG expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $3.45 per share, which represents a year-over-year growth rate of 0.58%.
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.
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. With that in mind, PEG 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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Public Service Enterprise Group Incorporated (PEG) : Free Stock Analysis Report
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