Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.
Essential Utilities in Focus
Headquartered in Bryn Mawr, Essential Utilities (WTRG) is a Utilities stock that has seen a price change of 1.35% so far this year. The water utility is currently shelling out a dividend of $0.25 per share, with a dividend yield of 2.09%. This compares to the Utility - Water Supply industry's yield of 1.54% and the S&P 500's yield of 1.37%.
Taking a look at the company's dividend growth, its current annualized dividend of $1 is up 3.1% from last year. Essential Utilities has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.72%. 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, Essential Utilities's payout ratio is 59%, which means it paid out 59% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WTRG for this fiscal year. The Zacks Consensus Estimate for 2021 is $1.67 per share, representing a year-over-year earnings growth rate of 5.70%.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that WTRG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research