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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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
Based in San Diego, Sempra (SRE) is in the Utilities sector, and so far this year, shares have seen a price change of -1.44%. The natural gas and electricity provider is currently shelling out a dividend of $2.2 per share, with a dividend yield of 3.5%. This compares to the Utility - Gas Distribution industry's yield of 3.23% and the S&P 500's yield of 1.42%.
Taking a look at the company's dividend growth, its current annualized dividend of $4.40 is up 5.3% from last year. In the past five-year period, Sempra has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.23%. 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. Sempra's current payout ratio is 56%. This means it paid out 56% of its trailing 12-month EPS as dividend.
SRE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $8.15 per share, representing a year-over-year earnings growth rate of 1.49%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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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