Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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.
Headquartered in Bryn Mawr, Essential Utilities (WTRG) is a Utilities stock that has seen a price change of 7.57% so far this year. Currently paying a dividend of $0.33 per share, the company has a dividend yield of 3.51%. In comparison, the Utility - Water Supply industry's yield is 2.56%, while the S&P 500's yield is 1.48%.
Looking at dividend growth, the company's current annualized dividend of $1.37 is up 8.3% 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 56%, meaning it paid out 56% 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 $2.11 per share, representing a year-over-year earnings growth rate of 7.11%.
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.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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 WTRG is not only an attractive dividend play, but is also a compelling investment opportunity with a 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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