Black Hills (BKH) Could Be a Great Choice

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.

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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Black Hills in Focus

Headquartered in Rapid City, Black Hills (BKH) is a Utilities stock that has seen a price change of 8.28% so far this year. Currently paying a dividend of $0.6 per share, the company has a dividend yield of 3.11%. In comparison, the Utility - Electric Power industry's yield is 3.37%, while the S&P 500's yield is 1.62%.

In terms of dividend growth, the company's current annualized dividend of $2.38 is up 3.9% from last year. Black Hills has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.93%. 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, Black Hills's payout ratio is 59%, which means it paid out 59% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for BKH for this fiscal year. The Zacks Consensus Estimate for 2022 is $4.05 per share, which represents a year-over-year growth rate of 8.29%.

Bottom Line

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.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, BKH presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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