This is Why E.ON SE (EONGY) is a Great Dividend Stock

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 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.

E.ON SE in Focus

Based in Essen, E.ON SE (EONGY) is in the Utilities sector, and so far this year, shares have seen a price change of 8.95%. The company is currently shelling out a dividend of $0.42 per share, with a dividend yield of 3.5%. This compares to the Utility - Electric Power industry's yield of 3.26% and the S&P 500's yield of 1.33%.

Looking at dividend growth, the company's current annualized dividend of $0.42 is up 11.4% from last year. In the past five-year period, E.ON SE has increased its dividend 4 times on a year-over-year basis for an average annual increase of 9.29%. 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. E.ON SE's current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for EONGY for this fiscal year. The Zacks Consensus Estimate for 2021 is $0.84 per share, representing a year-over-year earnings growth rate of 16.67%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. 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 EONGY 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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