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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Sempra in Focus
Sempra (SRE) is headquartered in San Diego, and is in the Utilities sector. The stock has seen a price change of 12.28% since the start of the year. The natural gas and electricity provider is currently shelling out a dividend of $1.14 per share, with a dividend yield of 3.08%. This compares to the Utility - Gas Distribution industry's yield of 3.08% and the S&P 500's yield of 1.73%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.58 is up 4.1% from last year. Sempra has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 7.18%. 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. Sempra's current payout ratio is 55%, meaning it paid out 55% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SRE expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $8.49 per share, with earnings expected to increase 0.71% 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. However, not all companies offer 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, SRE 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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