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.
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.
PSEG in Focus
PSEG (PEG) is headquartered in Newark, and is in the Utilities sector. The stock has seen a price change of -7.98% since the start of the year. The parent company of PSEG Power and Public Service Electric & Gas Co. Is paying out a dividend of $0.49 per share at the moment, with a dividend yield of 3.61% compared to the Utility - Electric Power industry's yield of 3.44% and the S&P 500's yield of 1.65%.
Looking at dividend growth, the company's current annualized dividend of $1.96 is up 4.3% from last year. PSEG has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.77%. 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. PSEG's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.
PEG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $3.35 per share, which represents a year-over-year growth rate of 2.13%.
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. With that in mind, PEG 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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Public Service Enterprise Group Incorporated (PEG) : Free Stock Analysis Report
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