Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Pembina Pipeline in Focus
Based in Calgary, Pembina Pipeline (PBA) is in the Oils-Energy sector, and so far this year, shares have seen a price change of -5.5%. Currently paying a dividend of $0.44 per share, the company has a dividend yield of 5.11%. In comparison, the Oil and Gas - Production and Pipelines industry's yield is 5.33%, while the S&P 500's yield is 1.93%.
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%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Pembina Pipeline's current payout ratio is 115%. This 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. 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. 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 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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Pembina Pipeline Corp. (PBA) : Free Stock Analysis Report
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