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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Target in Focus
Headquartered in Minneapolis, Target (TGT - Free Report) is a Retail-Wholesale stock that has seen a price change of 26.27% so far this year. The retailer is currently shelling out a dividend of $0.62 per share, with a dividend yield of 3.01%. This compares to the Retail - Discount Stores industry's yield of 1.02% and the S&P 500's yield of 1.76%.
Looking at dividend growth, the company's current annualized dividend of $2.48 is up 1.6% from last year. Over the last 5 years, Target has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.41%. 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. Target's current payout ratio is 51%, meaning it paid out 51% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TGT expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $5.28 per share, which represents a year-over-year growth rate of 12.10%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful 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 TGT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).