Why Sempra (SRE) is a Great Dividend Stock Right Now

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.

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.

Sempra in Focus

Based in San Diego, Sempra (SRE) is in the Utilities sector, and so far this year, shares have seen a price change of -18.11%. The natural gas and electricity provider is paying out a dividend of $1.04 per share at the moment, with a dividend yield of 3.37% compared to the Utility - Gas Distribution industry's yield of 3.02% and the S&P 500's yield of 1.96%.

Taking a look at the company's dividend growth, its current annualized dividend of $4.18 is up 8% from last year. Over the last 5 years, Sempra has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.56%. 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. Sempra's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SRE for this fiscal year. The Zacks Consensus Estimate for 2020 is $7.30 per share, which represents a year-over-year growth rate of 7.67%.

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. However, not all companies offer 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. That said, they can take comfort from the fact that SRE is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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