Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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.
NiSource in Focus
Based in Merrillville, NiSource (NI) is in the Utilities sector, and so far this year, shares have seen a price change of 8.73%. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.8%. In comparison, the Utility - Electric Power industry's yield is 3.35%, while the S&P 500's yield is 1.58%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.12 is up 5.7% from last year. In the past five-year period, NiSource has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.17%. 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. NiSource's current payout ratio is 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.
NI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $1.88 per share, which represents a year-over-year growth rate of 7.43%.
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. But, not every company offers 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. With that in mind, NI 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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This article originally published on Zacks Investment Research (zacks.com).
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