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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Headquartered in San Dimas, American States Water (AWR) is a Utilities stock that has seen a price change of 15.7% so far this year. Currently paying a dividend of $0.50 per share, the company has a dividend yield of 2.4%. In comparison, the Utility - Water Supply industry's yield is 2.56%, while the S&P 500's yield is 1.36%.
Looking at dividend growth, the company's current annualized dividend of $2.02 is up 4.2% from last year. Over the last 5 years, American States Water has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.23%. 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. American States Water's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AWR expects solid earnings growth. The Zacks Consensus Estimate for 2026 is $3.71 per share, with earnings expected to increase 10.09% from the year ago period.
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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers its shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AWR 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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American States Water Company (AWR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).