All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 Camden, American Water Works (AWK) is in the Utilities sector, and so far this year, shares have seen a price change of 16.4%. Currently paying a dividend of $0.83 per share, the company has a dividend yield of 2.28%. In comparison, the Utility - Water Supply industry's yield is 2.58%, while the S&P 500's yield is 1.48%.
Looking at dividend growth, the company's current annualized dividend of $3.31 is up 10.2% from last year. Over the last 5 years, American Water Works has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.54%. 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. American Water Works's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.
AWK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $5.71 per share, representing a year-over-year earnings growth rate of 5.94%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. 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 ReportThis article originally published on Zacks Investment Research (zacks.com).
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