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.
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.
Energy Transfer Equity in Focus
Based in Dallas, Energy Transfer Equity (ETE) is in the Oils-Energy sector, and so far this year, shares have seen a price change of 6.89%. The energy-related services provider is paying out a dividend of $0.31 per share at the moment, with a dividend yield of 6.61% compared to the Oil and Gas - Production Pipeline - MLB industry's yield of 6.66% and the S&P 500's yield of 1.76%.
Looking at dividend growth, the company's current annualized dividend of $1.22 is up 6.1% from last year. In the past five-year period, Energy Transfer Equity has increased its dividend 4 times on a year-over-year basis for an average annual increase of 14.80%. 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, Energy Transfer Equity's payout ratio is 99%, which means it paid out 99% of its trailing 12-month EPS as dividend.
ETE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.95 per share, representing a year-over-year earnings growth rate of 61.16%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that ETE is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Energy Transfer Equity, L.P. (ETE) : Free Stock Analysis Report
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