Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
IdaCorp in Focus
Based in Boise, IdaCorp (NYSE:IDA) is in the Utilities sector, and so far this year, shares have seen a price change of 6.71%. Currently paying a dividend of $0.59 per share, the company has a dividend yield of 2.42%. In comparison, the Utility – Electric Power industry’s yield is 3.26%, while the S&P 500’s yield is 1.76%.
In terms of dividend growth, the company’s current annualized dividend of $2.36 is up 5.4% from last year. Over the last 5 years, IdaCorp has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.64%.
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. Right now, IdaCorp’s payout ratio is 52%, which means it paid out 52% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for IDA for this fiscal year. The Zacks Consensus Estimate for 2018 is $4.28 per share, which represents a year-over-year growth rate of 1.66%.
Bottom Line
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates.
With that in mind, IDA 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).
