All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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.
TD Ameritrade in Focus
Headquartered in Omaha, TD Ameritrade (AMTD - Free Report) is a Finance stock that has seen a price change of 10.81% so far this year. The online brokerage is currently shelling out a dividend of $0.3 per share, with a dividend yield of 2.21%. This compares to the Financial - Investment Bank industry's yield of 0.95% and the S&P 500's yield of 1.97%.
In terms of dividend growth, the company's current annualized dividend of $1.20 is up 42.9% from last year. TD Ameritrade has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 15.10%. 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. Right now, TD Ameritrade's payout ratio is 33%, which means it paid out 33% of its trailing 12-month EPS as dividend.
AMTD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $4.04 per share, which represents a year-over-year growth rate of 20.96%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. With that in mind, AMTD 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).