Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
DTE Energy in Focus
DTE Energy (DTE) is headquartered in Detroit, and is in the Utilities sector. The stock has seen a price change of -0.84% since the start of the year. Currently paying a dividend of $0.88 per share, the company has a dividend yield of 3.25%. In comparison, the Utility – Electric Power industry's yield is 3.36%, while the S&P 500's yield is 1.77%.
In terms of dividend growth, the company's current annualized dividend of $3.53 is up 5.2% from last year. DTE Energy has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 7.35%. 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. DTE Energy's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
DTE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $6.16 per share, with earnings expected to increase 10.20% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, DTE presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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