This is Why American Water Works (AWK) is a Great Dividend Stock
All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
American Water Works in Focus
Based in Camden, American Water Works (AWK) is in the Utilities sector, and so far this year, shares have seen a price change of -10.6%. The water utility is currently shelling out a dividend of $0.71 per share, with a dividend yield of 2.4%. This compares to the Utility - Water Supply industry's yield of 2.41% and the S&P 500's yield of 1.59%.
Looking at dividend growth, the company's current annualized dividend of $2.83 is up 1.9% from last year. In the past five-year period, American Water Works has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.28%. 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. American Water Works's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
AWK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $5.20 per share, which represents a year-over-year growth rate of 6.12%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AWK 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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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
