Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Telephone & Data Systems in Focus
Telephone & Data Systems (TDS - Free Report) is headquartered in Chicago, and is in the Utilities sector. The stock has seen a price change of 3.2% since the start of the year. The parent of U.S. Cellular and TDS Telecom is paying out a dividend of $2.1 per share at the moment, with a dividend yield of 114% compared to the Wireline - National industry's yield of 28.3% and the S&P 500's yield of 0.16%.
Looking at dividend growth, the company's current annualized dividend of $2.10 is up 4.9% from last year. In the past five-year period, Telephone & Data Systems has increased its dividend 3.20 times on a year-over-year basis for an average annual increase of 5%. 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. TDS's current payout ratio is 9.75%, meaning it paid out 9.75% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TDS expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $0.64 per share, representing a year-over-year earnings growth rate of 1.24%.
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. That said, they can take comfort from the fact that TDS is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).