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.

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.

American States Water in Focus

Based in San Dimas, American States Water (AWR) is in the Utilities sector, and so far this year, shares have seen a price change of 2.29%. The water and electric utility is paying out a dividend of $0.47 per share at the moment, with a dividend yield of 2.26% compared to the Utility - Water Supply industry's yield of 2.18% and the S&P 500's yield of 1.51%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.86 is up 12.4% 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 8.93%. 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. American States Water's current payout ratio is 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for AWR for this fiscal year. The Zacks Consensus Estimate for 2024 is $3.03 per share, which represents a year-over-year growth rate of 6.32%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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).