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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Target in Focus
Target (TGT - Free Report) is headquartered in Minneapolis, and is in the Retail-Wholesale sector. The stock has seen a price change of 16.36% since the start of the year. The retailer is currently shelling out a dividend of $0.64 per share, with a dividend yield of 3.33%. This compares to the Retail - Discount Stores industry's yield of 0.96% and the S&P 500's yield of 1.94%.
Looking at dividend growth, the company's current annualized dividend of $2.56 is up 1.6% from last year. In the past five-year period, Target has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.24%. 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. Target's current payout ratio is 49%, meaning it paid out 49% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TGT expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.76 per share, with earnings expected to increase 6.84% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TGT is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).