Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Cheniere Energy Partners, LP in Focus
Cheniere Energy Partners, LP (CQP) is headquartered in Houston, and is in the Oils-Energy sector. The stock has seen a price change of 13.5% since the start of the year. The company is currently shelling out a dividend of $0.56 per share, with a dividend yield of 6.66%. This compares to the Oil and Gas - Production and Pipelines industry's yield of 5.2% and the S&P 500's yield of 2.02%.
In terms of dividend growth, the company's current annualized dividend of $2.24 is up 73.6% from last year. Cheniere Energy Partners, LP has increased its dividend 1 times on a year-over-year basis over the last 5 years for an average annual increase of 2.85%. 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. Cheniere Energy Partners, LP's current payout ratio is 250%. This means it paid out 250% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CQP expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $2.29 per share, with earnings expected to increase 273.48% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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, CQP 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).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.