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All investors like to get big returns from their portfolio, whether 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 goal.
While cash flow can come from interest on bonds or interest from other types of investments, income investors focus on dividends. A dividend is the distribution of a company’s profits paid to shareholders; it is often considered by its dividend yield, a metric that measures a dividend as a percentage of the current share price. Many academic studies show that dividends are a significant part of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Focus on national fuel gas
Based in Williamsville, National Fuel Gas (NFG – Free Report) is in the utilities sector, and so far this year the stock has seen a price change of -0.16%. The energy company currently pays a dividend of $0.47 per share, with a dividend yield of 2.98%. This compares to the Utilities – Gas Distribution industry return of 2.94% and the S&P 500 return of 1.61%.
In terms of dividend growth, the company’s current annualized dividend of $1.90 is up 2.2% from last year. Over the past 5 years, National Fuel Gas has increased its dividend 5 times on an annual basis for an average annual increase of 2.59%. Any future dividend growth will depend on both earnings growth and the company’s payout ratio; A payout ratio is the proportion of a company’s annual earnings per share that it pays out as a dividend. Currently, National Fuel Gas’ payout ratio is 32%, meaning it has paid out 32% of its 12-month EPS as a dividend.
Earnings growth looks solid for NFG for this fiscal year. The Zacks consensus estimate for 2022 is $6.95 per share, representing a year-over-year growth rate of 18.20%.
Conclusion
Investors love dividends for many reasons; they greatly improve the profits of equity investments, decrease the overall risk of the portfolio and offer tax advantages, among others. But not all companies offer a quarterly payment.
High-growth companies or tech start-ups, for example, rarely pay a dividend to their shareholders, while larger, more established companies with more secure earnings are often considered the best dividend options. Income-oriented investors should be aware that high yield stocks tend to struggle during periods of rising interest rates. With this in mind, NFG is an attractive investment opportunity. Not only is it a solid dividend play, but the stock currently sits at a Zacks rank of 3 (Hold).
