Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
PSEG in Focus
Headquartered in Newark, PSEG (PEG) is a Utilities stock that has seen a price change of 12.8% so far this year. The parent company of PSEG Power and Public Service Electric & Gas Co. Is currently shelling out a dividend of $0.47 per share, with a dividend yield of 3.2%. This compares to the Utility - Electric Power industry's yield of 2.92% and the S&P 500's yield of 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.88 is up 4.4% from last year. PSEG has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.99%. 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. PSEG's current payout ratio is 58%. This means it paid out 58% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PEG for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.24 per share, with earnings expected to increase 3.85% 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.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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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