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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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Sempra in Focus
Headquartered in San Diego, Sempra (SRE) is a Utilities stock that has seen a price change of 4.61% so far this year. The natural gas and electricity provider is paying out a dividend of $1.1 per share at the moment, with a dividend yield of 3.3% compared to the Utility - Gas Distribution industry's yield of 2.83% and the S&P 500's yield of 1.32%.
Looking at dividend growth, the company's current annualized dividend of $4.40 is up 5.3% from last year. Sempra has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 8.30%. 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. Right now, Sempra's payout ratio is 53%, which means it paid out 53% of its trailing 12-month EPS as dividend.
SRE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $8.10 per share, which represents a year-over-year growth rate of 0.87%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 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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Sempra Energy (SRE) : Free Stock Analysis Report
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