Whether it’s through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Enterprise Products Partners in Focus
Enterprise Products Partners (EPD) is headquartered in Houston, and is in the Oils-Energy sector. The stock has seen a price change of 12.52% since the start of the year. Currently paying a dividend of $0.43 per share, the company has a dividend yield of 6.29%. In comparison, the Oil and Gas – Production Pipeline – MLB industry’s yield is 7.4%, while the S&P 500’s yield is 1.97%.
Taking a look at the company’s dividend growth, its current annualized dividend of $1.74 is up 1.5% from last year. In the past five-year period, Enterprise Products Partners has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.73%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. Right now, Enterprise Products’s payout ratio is 99%, which means it paid out 99% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for EPD for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.92 per share, which represents a year-over-year growth rate of 0.52%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, EPD is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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