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.
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.
Shell in Focus
Headquartered in London, Shell (SHEL) is an Oils-Energy stock that has seen a price change of 5.67% so far this year. The oil and gas company is paying out a dividend of $0.72 per share at the moment, with a dividend yield of 4.33% compared to the Oil and Gas - Integrated - International industry's yield of 1.94% and the S&P 500's yield of 1.57%.
Looking at dividend growth, the company's current annualized dividend of $2.86 is up 3.9% from last year. Over the last 5 years, Shell has increased its dividend 4 times on a year-over-year basis for an average annual increase of 18.29%. 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. Right now, Shell's payout ratio is 37%, which means it paid out 37% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SHEL expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $7.94 per share, which represents a year-over-year growth rate of 5.59%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, SHEL 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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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
