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 the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
Sempra in Focus
Sempra (SRE) is headquartered in San Diego, and is in the Utilities sector. The stock has seen a price change of -19.05% since the start of the year. The natural gas and electricity provider is currently shelling out a dividend of $1.04 per share, with a dividend yield of 3.41%. This compares to the Utility - Gas Distribution industry's yield of 3.51% and the S&P 500's yield of 1.82%.
In terms of dividend growth, the company's current annualized dividend of $4.18 is up 8% from last year. In the past five-year period, Sempra has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.68%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Sempra's current payout ratio is 58%. This means it paid out 58% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SRE expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $7.44 per share, with earnings expected to increase 9.73% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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 SRE 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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