Why Essential Utilities (WTRG) is a Great Dividend Stock Right Now
All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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
Based in Bryn Mawr, Essential Utilities (WTRG) is in the Utilities sector, and so far this year, shares have seen a price change of 0.63%. The water utility is currently shelling out a dividend of $0.25 per share, with a dividend yield of 2.11%. This compares to the Utility - Water Supply industry's yield of 1.59% and the S&P 500's yield of 1.3%.
In terms of dividend growth, the company's current annualized dividend of $1 is up 3.1% from last year. Over the last 5 years, Essential Utilities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.07%. 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. Essential Utilities's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.
WTRG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $1.67 per share, with earnings expected to increase 5.70% 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. Income investors have to be mindful 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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