What Income Investors Should Be Looking For

We are all looking to make money in the stock market. But that money may come in a number of ways.

One way could be to buy a great stock at a reasonable price and wait for the price to appreciate over the years. This is generally called value investing and it’s the mature companies that usually make this list.

Or, you could be betting on the earnings growth potential of a company. Sure, you could make mistakes with this strategy because the company may not do as well as you’d hoped. But if you did your homework well, chances are, the company would meet or exceed your expectations, leading to exponential increase in its share prices. This is generally called growth investing.

There’s a third way to make money, and it involves a steady flow of income that may be reinvested or used, as required. Mature companies that don’t need all the cash they earn, return some to investors in the form of share repurchases or dividends. When you receive a dividend on shares that you hold, it’s your income.

Ideally, you’d want some dividend-payers to balance out the risk in the rest of your portfolio because let’s face it, we all make losses once in a while. That’s the name of the game.

If you’re choosing shares based on the recurring income opportunity, you’d want to compare dividend paying stocks to determine which ones are better. Dividend yields based on the current price of stocks are also available on zacks.com . This number helps you compare stocks. [Your personal rate of return will be the dividend you actually receive on a share divided by the price that you actually paid for it.]

Next, you’d want to know which ones are likely to generate a steady flow of income (even better if this increases every year, or so) based on the historical track record.

Now, one thing to keep in mind is that a company generally pays dividend as a matter of policy, or when it can’t profitably employ the cash generated in the business. A very large company may not need all the cash it generates, so it can return some to investors.

However, a company having difficulty coping with the operating environment may also choose to pay a high dividend to retain investors. It’s important to note that this high rate of dividend may not be sustained as the difficult times pass and it gets back on track. Alternatively, it may stop paying the dividend when conditions take a turn for the worse.

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Our goal should be to minimize risk.

So when choosing a dividend stock, compare dividend yields, the historical track record, whether dividends have increased over time. Also check whether any unusual circumstances that are affecting the company negatively are likely to change soon.

Now let’s discuss some stocks-

TOTAL SE TOT

The company is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves and market capitalization.

Oil and gas stocks didn’t have a good 2020 with all the lockdowns, restricted travel and social distancing in place. With the economy looking up and vaccination also expected to reach everyone this year, people may be expected to return to a semblance of normalcy. This will lead to higher demand and stronger pricing for the commodity.

The company increased the quarterly dividend by more than the usual amount last year, although shrinking profitability limited the payout ratio. But the earnings growth outlook is attractive at this point and along with the valuation, makes the shares look attractive.

Zacks Rank #1

Value Score B, Growth Score C, Momentum Score F

Industry: Oil and Gas - Integrated – International (top 17%)

Earnings are expected to grow 143.4% this year and 14.0% in the next

Dividend Yield is 5.1%

P/E 13.09X (attractive)

P/S 0.86X (attractive)