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.
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.
Target in Focus
Based in Minneapolis, Target (TGT - Free Report) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of 4.9%. Currently paying a dividend of $2.91 per share, the company has a dividend yield of 49%. In comparison, the Retail - Discount Stores industry's yield is 14.01%, while the S&P 500's yield is 0.64%.
Looking at dividend growth, the company's current annualized dividend of $3.22 is up 10.4% from last year. Target has increased its dividend 3.30 times on a year-over-year basis over the last 5 years for an average annual increase of 5%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Target's payout ratio is 34.99%, which means it paid out 34.99% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for TGT for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.56 per share, representing a year-over-year earnings growth rate of 5.62%.
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.
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. 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).