Why Black Hills (BKH) is a Top Dividend Stock for Your Portfolio

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Black Hills in Focus

Based in Rapid City, Black Hills (BKH) is in the Utilities sector, and so far this year, shares have seen a price change of 5.13%. The energy company is currently shelling out a dividend of $0.6 per share, with a dividend yield of 3.21%. This compares to the Utility - Electric Power industry's yield of 3.07% and the S&P 500's yield of 1.61%.

Looking at dividend growth, the company's current annualized dividend of $2.38 is up 3.9% from last year. In the past five-year period, Black Hills has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.11%. 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. Black Hills's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, BKH expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $4.05 per share, which represents a year-over-year growth rate of 8.29%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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, BKH 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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