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Why Chesapeake Utilities (CPK) is a Great Dividend Stock Right Now

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 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.

Chesapeake Utilities in Focus

Chesapeake Utilities (CPK) is headquartered in Dover, and is in the Utilities sector. The stock has seen a price change of -11.72% since the start of the year. The energy and utility company is currently shelling out a dividend of $0.44 per share, with a dividend yield of 2.08%. This compares to the Utility - Gas Distribution industry's yield of 3.45% and the S&P 500's yield of 1.76%.

In terms of dividend growth, the company's current annualized dividend of $1.76 is up 11% from last year. In the past five-year period, Chesapeake Utilities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.44%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Chesapeake Utilities's current payout ratio is 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.

CPK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.01 per share, representing a year-over-year earnings growth rate of 9.56%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CPK is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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