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

·3 min read

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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.

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 20.54%. The natural gas and electricity provider is paying out a dividend of $1.14 per share at the moment, with a dividend yield of 2.87% compared to the Utility - Gas Distribution industry's yield of 2.64% and the S&P 500's yield of 1.53%.

Looking at dividend growth, the company's current annualized dividend of $4.58 is up 4.1% from last year. Over the last 5 years, Sempra has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.37%. 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. Sempra's current payout ratio is 55%. This means it paid out 55% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SRE for this fiscal year. The Zacks Consensus Estimate for 2022 is $8.48 per share, representing a year-over-year earnings growth rate of 0.59%.

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. It's important to keep in mind that not all companies provide 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 SRE 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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