All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.

American States Water in Focus

Headquartered in San Dimas, American States Water (AWR Quick QuoteAWR - Free Report) is a Utilities stock that has seen a price change of 4.5% so far this year. Currently paying a dividend of $0.43 per share, the company has a dividend yield of 2.05%. In comparison, the Utility - Water Supply industry's yield is 2.1%, while the S&P 500's yield is 1.61%.

Looking at dividend growth, the company's current annualized dividend of $1.72 is up 3.9% from last year. In the past five-year period, American States Water has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.61%. 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. American States Water's current payout ratio is 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, AWR expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $3.01 per share, which represents a year-over-year growth rate of 5.61%.

Bottom Line

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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AWR 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).