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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Middlesex Water in Focus
Middlesex Water (MSEX) is headquartered in Iselin, and is in the Utilities sector. The stock has seen a price change of 14.17% since the start of the year. The water utility is currently shelling out a dividend of $0.34 per share, with a dividend yield of 2.26%. This compares to the Utility - Water Supply industry's yield of 2.43% and the S&P 500's yield of 1.59%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.36 is up 3.4% from last year. Middlesex Water has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.15%. 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. Middlesex Water's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.
MSEX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $2.53 per share, which represents a year-over-year growth rate of 2.43%.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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 MSEX 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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Middlesex Water Company (MSEX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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