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Toronto-Dominion Bank (TD) Could Be a Great Choice
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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.
Toronto-Dominion Bank in Focus
Based in Toronto, Toronto-Dominion Bank (TD - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 4.54%. The retail and wholesale bank is paying out a dividend of $0.71 per share at the moment, with a dividend yield of 4.18% compared to the Banks - Foreign industry's yield of 3.17% and the S&P 500's yield of 1.63%.
Looking at dividend growth, the company's current annualized dividend of $2.83 is up 2.9% from last year. In the past five-year period, Toronto-Dominion Bank has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.36%. 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. Toronto-Dominion's current payout ratio is 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.
TD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $6.67 per share, which represents a year-over-year growth rate of 2.77%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TD presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).