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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
American Water Works in Focus
Headquartered in Camden, American Water Works (AWK) is a Utilities stock that has seen a price change of -31.08% so far this year. Currently paying a dividend of $0.65 per share, the company has a dividend yield of 2.01%. In comparison, the Utility - Water Supply industry's yield is 1.97%, while the S&P 500's yield is 1.87%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.62 is up 11.1% from last year. American Water Works has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.82%. 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. American Water Works's current payout ratio is 0%. This means it paid out 0% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AWK expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $4.45 per share, representing a year-over-year earnings growth rate of 4.71%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that AWK is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
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