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.
Suncor Energy in Focus
Headquartered in Calgary, Suncor Energy (SU) is an Oils-Energy stock that has seen a price change of 11.12% so far this year. The energy company is paying out a dividend of $0.31 per share at the moment, with a dividend yield of 4% compared to the Oil and Gas - Integrated - Canadian industry's yield of 2.42% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $1.24 is up 11.6% from last year. Suncor Energy has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5.86%. 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. Suncor Energy's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SU for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.54 per share, representing a year-over-year earnings growth rate of 27%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, SU 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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Suncor Energy Inc. (SU) : Free Stock Analysis Report
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