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.
Essential Utilities in Focus
Essential Utilities (WTRG) is headquartered in Bryn Mawr, and is in the Utilities sector. The stock has seen a price change of -5.33% since the start of the year. The water utility is currently shelling out a dividend of $0.23 per share, with a dividend yield of 2.11%. This compares to the Utility - Water Supply industry's yield of 1.9% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.94 is up 3.6% from last year. In the past five-year period, Essential Utilities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.21%. 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. Right now, Essential Utilities's payout ratio is 52%, which means it paid out 52% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for WTRG for this fiscal year. The Zacks Consensus Estimate for 2020 is $1.56 per share, which represents a year-over-year growth rate of 6.12%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, WTRG 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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Essential Utilities Inc. (WTRG) : Free Stock Analysis Report
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