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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. However, 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.
Sempra in Focus
Headquartered in San Diego, Sempra (SRE) is a Utilities stock that has seen a price change of -0.05% so far this year. The natural gas and electricity provider is paying out a dividend of $1.1 per share at the moment, with a dividend yield of 3.45% compared to the Utility - Gas Distribution industry's yield of 3.17% and the S&P 500's yield of 1.33%.
In terms of dividend growth, the company's current annualized dividend of $4.40 is up 5.3% 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 7.91%. 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. Sempra's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SRE expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $8.23 per share, representing a year-over-year earnings growth rate of 2.49%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. 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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Sempra Energy (SRE) : Free Stock Analysis Report
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