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.
Based in Bryn Mawr, Essential Utilities (WTRG) is in the Utilities sector, and so far this year, shares have seen a price change of 2.78%. Currently paying a dividend of $0.33 per share, the company has a dividend yield of 3.49%. In comparison, the Utility - Water Supply industry's yield is 2.53%, while the S&P 500's yield is 1.52%.
Looking at dividend growth, the company's current annualized dividend of $1.30 is up 2.8% from last year. Over the last 5 years, Essential Utilities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.53%. 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. Essential Utilities's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
WTRG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $2.10 per share, representing a year-over-year earnings growth rate of 6.60%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers its 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, WTRG 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).
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Essential Utilities Inc. (WTRG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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