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
Based in Minneapolis, Ameriprise Financial Services (AMP - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of -17.59%. Currently paying a dividend of $0.9 per share, the company has a dividend yield of 2.58%. In comparison, the Financial - Investment Management industry's yield is 2.72%, while the S&P 500's yield is 1.78%.
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%. 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. Ameriprise's current payout ratio is 26%. This means it paid out 26% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AMP for this fiscal year. The Zacks Consensus Estimate for 2018 is $14.68 per share, which represents a year-over-year growth rate of 19.64%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AMP 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).