Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
CenterPoint Energy in Focus
Headquartered in Houston, CenterPoint Energy (CNP) is a Utilities stock that has seen a price change of 6.3% so far this year. The energy delivery company is currently shelling out a dividend of $0.21 per share, with a dividend yield of 2.61%. This compares to the Utility - Electric Power industry's yield of 3.18% and the S&P 500's yield of 1.52%.
In terms of dividend growth, the company's current annualized dividend of $0.88 is up 8.6% from last year. In the past five-year period, CenterPoint Energy has increased its dividend 4 times on a year-over-year basis for an average annual increase of 3.93%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. CenterPoint's current payout ratio is 52%, meaning it paid out 52% of its trailing 12-month EPS as dividend.
CNP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $1.75 per share, with earnings expected to increase 8.02% from the year ago period.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CNP 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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