Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
TD Ameritrade in Focus
Based in Omaha, TD Ameritrade (AMTD - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 5.5%. The online brokerage is paying out a dividend of $0.3 per share at the moment, with a dividend yield of 2.22% compared to the Financial - Investment Bank industry's yield of 0.88% and the S&P 500's yield of 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.20 is up 42.9% from last year. Over the last 5 years, TD Ameritrade has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.35%. 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. TD Ameritrade's current payout ratio is 25%. This means it paid out 25% of its trailing 12-month EPS as dividend.
AMTD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $3.97 per share, representing a year-over-year earnings growth rate of 18.86%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AMTD presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).