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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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 -9.73% since the start of the year. The financial services company is currently shelling out a dividend of $1.04 per share, with a dividend yield of 2.77%. This compares to the Financial - Investment Management industry's yield of 2.18% and the S&P 500's yield of 1.66%.
Looking at dividend growth, the company's current annualized dividend of $4.16 is up 9.2% from last year. Over the last 5 years, Ameriprise Financial Services has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.42%. 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. Right now, Ameriprise's payout ratio is 25%, which means it paid out 25% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AMP for this fiscal year. The Zacks Consensus Estimate for 2020 is $16.35 per share, representing a year-over-year earnings growth rate of 1.55%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AMP 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).