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Why Sempra (SRE) is a Great Dividend Stock Right Now

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  • SRE

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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Sempra in Focus

Based in San Diego, Sempra (SRE) is in the Utilities sector, and so far this year, shares have seen a price change of 4.99%. The natural gas and electricity provider is currently shelling out a dividend of $1.1 per share, with a dividend yield of 3.29%. This compares to the Utility - Gas Distribution industry's yield of 2.97% and the S&P 500's yield of 1.35%.

In terms of dividend growth, the company's current annualized dividend of $4.40 is up 5.3% from last year. In the past five-year period, Sempra has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.23%. 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. Sempra's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.

SRE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $8.13 per share, representing a year-over-year earnings growth rate of 1.25%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SRE 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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