Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 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
Ameriprise Financial Services (AMP - Free Report) is headquartered in Minneapolis, and is in the Finance sector. The stock has seen a price change of -10.33% since the start of the year. The financial services company is paying out a dividend of $0.9 per share at the moment, with a dividend yield of 2.37% compared to the Financial - Investment Management industry's yield of 2.66% and the S&P 500's yield of 1.81%.
In terms of dividend growth, the company's current annualized dividend of $3.60 is up 11.1% from last year. Over the last 5 years, Ameriprise Financial Services has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.36%. 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. Right now, Ameriprise's payout ratio is 26%, which means it paid out 26% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AMP expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $14.73 per share, which represents a year-over-year growth rate of 20.05%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. 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 AMP is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).