Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
TCF Financial in Focus
Headquartered in Wayzata, TCF Financial (TCF - Free Report) is a Finance stock that has seen a price change of 19.12% so far this year. The holding company for TCF National Bank is paying out a dividend of $0.15 per share at the moment, with a dividend yield of 2.46% compared to the Banks - Midwest industry's yield of 2.01% and the S&P 500's yield of 1.81%.
Looking at dividend growth, the company's current annualized dividend of $0.60 is up 100% from last year. In the past five-year period, TCF Financial has increased its dividend 2 times on a year-over-year basis for an average annual increase of 25.03%. 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. TCF's current payout ratio is 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.
TCF is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.83 per share, with earnings expected to increase 52.50% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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 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 TCF is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).