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 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.
CenterPoint Energy in Focus
CenterPoint Energy (CNP) is headquartered in Houston, and is in the Utilities sector. The stock has seen a price change of 14.62% since the start of the year. The energy delivery company is paying out a dividend of $0.22 per share at the moment, with a dividend yield of 2.42% compared to the Utility - Electric Power industry's yield of 3.33% and the S&P 500's yield of 1.57%.
In terms of dividend growth, the company's current annualized dividend of $0.88 is up 8.6% from last year. CenterPoint Energy has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 8.25%. 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. Right now, CenterPoint's payout ratio is 55%, which means it paid out 55% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for CNP for this fiscal year. The Zacks Consensus Estimate for 2025 is $1.75 per share, which represents a year-over-year growth rate of 8.02%.
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. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that CNP 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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CenterPoint Energy, Inc. (CNP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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