All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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.
MGE in Focus
Headquartered in Madison, MGE (MGEE) is a Utilities stock that has seen a price change of -16.54% so far this year. The public utility holding company is paying out a dividend of $0.35 per share at the moment, with a dividend yield of 2.14% compared to the Utility - Electric Power industry's yield of 3.53% and the S&P 500's yield of 1.64%.
Looking at dividend growth, the company's current annualized dividend of $1.41 is up 2.2% from last year. In the past five-year period, MGE has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.42%. 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. MGE's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MGEE for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.52 per share, with earnings expected to increase 0.40% from the year ago period.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MGEE 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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MGE Energy Inc. (MGEE) : Free Stock Analysis Report
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