All investors love getting big returns from their portfolio, whether it’s through stocks, bonds, ETFs, or other types of securities. However, when you’re an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
National Fuel Gas in Focus
Headquartered in Williamsville, National Fuel Gas (NFG – Free Report) is an Oils-Energy stock that has seen a price change of 20.79% so far this year. Currently paying a dividend of $0.51 per share, the company has a dividend yield of 3.4%. In comparison, the Oil and Gas – Integrated – United States industry’s yield is 2.39%, while the S&P 500’s yield is 1.54%.
Taking a look at the company’s dividend growth, its current annualized dividend of $2.06 is up 2% from last year. Over the last 5 years, National Fuel Gas has increased its dividend 5 times on a year-over-year basis for an average annual increase of 3.64%. 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. National Fuel Gas’s current payout ratio is 41%. This means it paid out 41% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NFG expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $6.11 per share, with earnings expected to increase 21.96% from the year ago period.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. 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 NFG is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).
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