All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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.
NextEra Energy in Focus
Headquartered in Juno Beach, NextEra Energy (NEE) is a Utilities stock that has seen a price change of 9.34% so far this year. Currently paying a dividend of $1.25 per share, the company has a dividend yield of 2.63%. In comparison, the Utility - Electric Power industry's yield is 2.97%, while the S&P 500's yield is 1.89%.
In terms of dividend growth, the company's current annualized dividend of $5 is up 12.6% from last year. In the past five-year period, NextEra Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.98%. 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. NextEra's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for NEE for this fiscal year. The Zacks Consensus Estimate for 2019 is $8.41 per share, representing a year-over-year earnings growth rate of 9.22%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, NEE presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
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