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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Headquartered in Houston, CenterPoint Energy (CNP) is a Utilities stock that has seen a price change of 2.48% so far this year. Currently paying a dividend of $0.24 per share, the company has a dividend yield of 2.44%. In comparison, the Utility - Electric Power industry's yield is 3.18%, while the S&P 500's yield is 1.32%.
Looking at dividend growth, the company's current annualized dividend of $0.96 is up 9.1% from last year. Over the last 5 years, CenterPoint Energy has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.33%. 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. CenterPoint's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, CNP expects solid earnings growth. The Zacks Consensus Estimate for 2026 is $1.91 per share, representing a year-over-year earnings growth rate of 8.52%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that CNP is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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CenterPoint Energy, Inc. (CNP): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).