All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Alliant Energy in Focus
Based in Madison, Alliant Energy (LNT) is in the Utilities sector, and so far this year, shares have seen a price change of -0.33%. The electric and gas utility parent company is paying out a dividend of $0.34 per share at the moment, with a dividend yield of 3.16% compared to the Utility - Electric Power industry's yield of 3.32% and the S&P 500's yield of 1.76%.
Looking at dividend growth, the company's current annualized dividend of $1.34 is up 6.3% from last year. In the past five-year period, Alliant Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.47%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Alliant Energy's payout ratio is 66%, which means it paid out 66% of its trailing 12-month EPS as dividend.
LNT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.13 per share, representing a year-over-year earnings growth rate of 10.36%.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that LNT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.