All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Shell in Focus
Based in London, Shell (SHEL) is in the Oils-Energy sector, and so far this year, shares have seen a price change of 7.15%. Currently paying a dividend of $0.72 per share, the company has a dividend yield of 4.27%. In comparison, the Oil and Gas - Integrated - International industry's yield is 1.72%, while the S&P 500's yield is 1.53%.
Looking at dividend growth, the company's current annualized dividend of $2.86 is up 3.9% from last year. Shell has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 18.29%. 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. Shell's current payout ratio is 37%, meaning it paid out 37% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SHEL expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $7.67 per share, representing a year-over-year earnings growth rate of 1.99%.
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. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, SHEL 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
