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.

Cash flow can come from bond interest, interest from other types of investments, and of course, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Middlesex Water in Focus

Based in Iselin, Middlesex Water (MSEX) is in the Utilities sector, and so far this year, shares have seen a price change of 15.66%. Currently paying a dividend of $0.34 per share, the company has a dividend yield of 2.23%. In comparison, the Utility - Water Supply industry's yield is 2.48%, while the S&P 500's yield is 1.78%.

Looking at dividend growth, the company's current annualized dividend of $1.36 is up 3.4% from last year. In the past five-year period, Middlesex Water has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.15%. 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. Right now, Middlesex Water's payout ratio is 55%, which means it paid out 55% of its trailing 12-month EPS as dividend.

MSEX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $2.50 per share, representing a year-over-year earnings growth rate of 1.21%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MSEX 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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