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Why Sempra (SRE) is a Great Dividend Stock Right Now

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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

Headquartered in San Diego, Sempra (SRE) is a Utilities stock that has seen a price change of -17.84% so far this year. The natural gas and electricity provider is currently shelling out a dividend of $1.04 per share, with a dividend yield of 3.36%. This compares to the Utility - Gas Distribution industry's yield of 3.51% and the S&P 500's yield of 1.83%.

Taking a look at the company's dividend growth, its current annualized dividend of $4.18 is up 8% from last year. Over the last 5 years, Sempra has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.68%. 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, Sempra's payout ratio is 58%, which means it paid out 58% of its trailing 12-month EPS as dividend.

SRE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $7.54 per share, with earnings expected to increase 11.21% from the year ago period.

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. However, not all companies offer 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SRE 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.

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