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Why Black Hills (BKH) is a Great Dividend Stock Right Now

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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. 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 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.

Black Hills in Focus

Based in Rapid City, Black Hills (BKH) is in the Utilities sector, and so far this year, shares have seen a price change of 14.32%. The energy company is currently shelling out a dividend of $0.56 per share, with a dividend yield of 3.22%. This compares to the Utility - Electric Power industry's yield of 3.2% and the S&P 500's yield of 1.36%.

Looking at dividend growth, the company's current annualized dividend of $2.26 is up 4.1% from last year. Black Hills has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.54%. 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. Right now, Black Hills's payout ratio is 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for BKH for this fiscal year. The Zacks Consensus Estimate for 2021 is $3.89 per share, which represents a year-over-year growth rate of 4.29%.

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. However, not all companies offer 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BKH 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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