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Why Ameriprise Financial Services (AMP) is a Great Dividend Stock

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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.

Ameriprise Financial Services in Focus

Ameriprise Financial Services (AMP - Free Report) is headquartered in Minneapolis, and is in the Finance sector. The stock has seen a price change of -16.65% since the start of the year. The financial services company is currently shelling out a dividend of $0.9 per share, with a dividend yield of 2.55%. This compares to the Financial - Investment Management industry's yield of 2.72% and the S&P 500's yield of 1.79%.

In terms of dividend growth, the company's current annualized dividend of $3.60 is up 11.1% from last year. Ameriprise Financial Services has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 12.45%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Ameriprise's current payout ratio is 26%, meaning it paid out 26% of its trailing 12-month EPS as dividend.

AMP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $14.68 per share, representing a year-over-year earnings growth rate of 19.64%.

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. 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 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 AMP is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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