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.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Bank of Montreal in Focus
Headquartered in Toronto, Bank of Montreal (BMO - Free Report) is a Finance stock that has seen a price change of 17.09% so far this year. The bank is currently shelling out a dividend of $0.76 per share, with a dividend yield of 3.98%. This compares to the Banks - Foreign industry's yield of 3.09% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $3.05 is up 4.3% from last year. Bank of Montreal has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 1.72%. 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. Bank of Montreal's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BMO expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $7.31 per share, with earnings expected to increase 4.58% 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. However, not all companies offer 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BMO 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).