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Why Pinnacle West (PNW) is a Top Dividend Stock for Your Portfolio

Zacks Equity Research
·3 min read

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.

Pinnacle West in Focus

Pinnacle West (PNW) is headquartered in Phoenix, and is in the Utilities sector. The stock has seen a price change of -18.33% since the start of the year. The power company is paying out a dividend of $0.78 per share at the moment, with a dividend yield of 4.26% compared to the Utility - Electric Power industry's yield of 3.51% and the S&P 500's yield of 1.66%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.13 is up 4.5% from last year. Over the last 5 years, Pinnacle West has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.80%. 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. Right now, Pinnacle West's payout ratio is 59%, which means it paid out 59% of its trailing 12-month EPS as dividend.

PNW is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.82 per share, which represents a year-over-year growth rate of 1.05%.

Bottom Line

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. 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 PNW is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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