This is Why PSEG (PEG) is a Great Dividend Stock

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 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.

PSEG in Focus

Headquartered in Newark, PSEG (PEG) is a Utilities stock that has seen a price change of -19.51% so far this year. The parent company of PSEG Power and Public Service Electric & Gas Co. Is paying out a dividend of $0.49 per share at the moment, with a dividend yield of 4.12% compared to the Utility - Electric Power industry's yield of 3.67% and the S&P 500's yield of 2.31%.

Looking at dividend growth, the company's current annualized dividend of $1.96 is up 4.3% from last year. In the past five-year period, PSEG has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.75%. 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. PSEG's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.

PEG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $3.34 per share, which represents a year-over-year growth rate of 1.83%.

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.

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. 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, PEG 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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