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Why The Bank of New York Mellon Corporation (BK) is a Great Dividend Stock Right Now

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

The Bank of New York Mellon Corporation in Focus

Headquartered in New York, The Bank of New York Mellon Corporation (BK - Free Report) is a Finance stock that has seen a price change of 12.68% so far this year. Currently paying a dividend of $0.37 per share, the company has a dividend yield of 2.89%. In comparison, the Banks - Major Regional industry's yield is 3.07%, while the S&P 500's yield is 1.57%.

Looking at dividend growth, the company's current annualized dividend of $1.48 is up 4.2% from last year. The Bank of New York Mellon Corporation has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 7.78%. 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. The Bank of New York Mellon Corporation's current payout ratio is 33%. This means it paid out 33% of its trailing 12-month EPS as dividend.

BK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $4.77 per share, with earnings expected to increase 3.92% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that BK is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).


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