Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Pembina Pipeline in Focus
Headquartered in Calgary, Pembina Pipeline (PBA) is an Oils-Energy stock that has seen a price change of -2.63% so far this year. The oil and gas transportation and services company is paying out a dividend of $0.44 per share at the moment, with a dividend yield of 4.96% compared to the Oil and Gas - Production and Pipelines industry's yield of 5.45% and the S&P 500's yield of 1.77%.
Looking at dividend growth, the company's current annualized dividend of $1.75 is up 11.5% from last year. In the past five-year period, Pembina Pipeline has increased its dividend 4 times on a year-over-year basis for an average annual increase of 2.42%. 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, Pembina Pipeline's payout ratio is 115%, which means it paid out 115% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PBA expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.72 per share, with earnings expected to increase 29.32% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful 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 PBA 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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