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This is Why Southwest Gas (SWX) is a Great Dividend Stock

Cohen & Steers (CNS) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

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

Southwest Gas in Focus

Headquartered in Las Vegas, Southwest Gas (SWX) is a Utilities stock that has seen a price change of -3.4% so far this year. Currently paying a dividend of $0.52 per share, the company has a dividend yield of 2.68%. In comparison, the Utility - Gas Distribution industry's yield is 2.58%, while the S&P 500's yield is 1.9%.

In terms of dividend growth, the company's current annualized dividend of $2.08 is up 7.5% from last year. In the past five-year period, Southwest Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.33%. 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. Southwest Gas's current payout ratio is 54%. This means it paid out 54% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, SWX expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.75 per share, representing a year-over-year earnings growth rate of 3.59%.

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. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that SWX is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).


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