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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 9.56% so far this year. The natural gas company is currently shelling out a dividend of $0.6 per share, with a dividend yield of 3.58%. This compares to the Utility - Gas Distribution industry's yield of 2.77% and the S&P 500's yield of 1.3%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.38 is up 5.5% from last year. Over the last 5 years, Southwest Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.63%. 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 47%, meaning it paid out 47% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SWX expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $4.15 per share, representing a year-over-year earnings growth rate of 0.24%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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, SWX 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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Southwest Gas Corporation (SWX) : Free Stock Analysis Report
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