Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, for income investors, the primary focus is generating consistent cash flow from every liquid investment. Dividend stocks can meet that criteria.
That cash flow can come from bond interest, interest from other types of investments, and of course, dividend stocks. A dividend is the distribution of a company’s earnings paid out to shareholders; it’s often measured in terms of the 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.
Southwest Gas in Focus
Southwest Gas (NYSE: SWX) is headquartered in Las Vegas, and is in the Utilities sector. The dividend stock has seen a price change of 19.18% since the start of the year. Currently paying a dividend of 55 cents per share, the company has a dividend yield of 2.39%. In comparison, the Utility – Gas Distribution industry’s yield is 2.71%, while the S&P 500’s yield is 1.88%.
Looking at dividend growth, the company’s current annualized dividend of $2.18 is up 6.1% from last year. Southwest Gas has increased its dividend five times over the last five years for an average annual increase of 9.09%. 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, Southwest Gas’s payout ratio is 58%, which means it paid out 58% of its trailing 12-month EPS in dividends.
Looking at this fiscal year, the dividend stock expects solid earnings growth. The Zacks Consensus Estimate for its 2019 EPS is $3.93, representing a year-over-year earnings growth rate of 6.79%.
The Bottom Line on SWX
Investors like dividend stocks for a variety of different reasons, including their ability to greatly improve investing profits, reduce overall portfolio risk, and provide tax advantages, However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend stock, but it’s fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding dividend stocks tend to struggle during periods of rising interest rates. With that in mind, SWX is a compelling investment opportunity. Not only is it a strong dividend play, but the dividend stock currently sits at a Zacks Rank of 3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report