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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.

NRG Energy in Focus

NRG Energy (NRG) is headquartered in Houston, and is in the Utilities sector. The stock has seen a price change of 18.17% since the start of the year. Currently paying a dividend of $0.38 per share, the company has a dividend yield of 4.02%. In comparison, the Utility - Electric Power industry's yield is 3.73%, while the S&P 500's yield is 1.66%.

In terms of dividend growth, the company's current annualized dividend of $1.51 is up 7.9% from last year. In the past five-year period, NRG Energy has increased its dividend 4 times on a year-over-year basis for an average annual increase of 88.27%. 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. NRG's current payout ratio is 39%. This means it paid out 39% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, NRG expects solid earnings growth. The Zacks Consensus Estimate for 2023 is $4.55 per share, representing a year-over-year earnings growth rate of 73.66%.

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. It's important to keep in mind that not all companies provide 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, NRG 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).

Zacks Names #1 Semiconductor Stock

It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.

With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.