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.
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 9.46% since the start of the year. The parent of U.S. Cellular and TDS Telecom is currently shelling out a dividend of $0.16 per share, with a dividend yield of 2.1%. This compares to the Wireline - National industry's yield of 2.1% and the S&P 500's yield of 1.8%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.64 is up 3.2% from last year. Over the last 5 years, Telephone & Data Systems has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.91%. 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 114%. This means it paid out 114% of its trailing 12-month EPS as dividend.
TDS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $0.68 per share, which represents a year-over-year growth rate of 28.30%.
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. Income investors must be conscious 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).