Essential Utilities (WTRG) Could Be a Great Choice

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 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.

Essential Utilities (WTRG) is headquartered in Bryn Mawr, and is in the Utilities sector. The stock has seen a price change of 2.7% since the start of the year. The water utility is currently shelling out a dividend of $0.34 per share, with a dividend yield of 3.67%. This compares to the Utility - Water Supply industry's yield of 2.68% and the S&P 500's yield of 1.5%.

Looking at dividend growth, the company's current annualized dividend of $1.37 is up 8.3% from last year. Over the last 5 years, Essential Utilities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.53%. 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. Essential Utilities's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.

WTRG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $2.11 per share, with earnings expected to increase 7.11% 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. 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 WTRG 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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This article originally published on Zacks Investment Research (zacks.com).

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