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 tha t dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Suncor Energy in Focus
Suncor Energy (SU) is headquartered in Calgary, and is in the Oils-Energy sector. The stock has seen a price change of 11.83% since the start of the year. Currently paying a dividend of $0.32 per share, the company has a dividend yield of 4.08%. In comparison, the Oil and Gas - Integrated - Canadian industry's yield is 2.09%, while the S&P 500's yield is 2.03%.
In terms of dividend growth, the company's current annualized dividend of $1.27 is up 14.3% from last year. Over the last 5 years, Suncor Energy has increased its dividend 4 times on a year-over-year basis for an average annual increase of 5.86%. 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. Suncor Energy's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
SU is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.55 per share, which represents a year-over-year growth rate of 27.50%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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 SU is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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