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 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.
Bank of Montreal in Focus
Based in Toronto, Bank of Montreal (BMO - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 16.92%. The bank is currently shelling out a dividend of $0.76 per share, with a dividend yield of 3.99%. This compares to the Banks - Foreign industry's yield of 3.23% and the S&P 500's yield of 1.9%.
In terms of 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%. 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. Bank of Montreal's current payout ratio is 43%. This means 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, representing a year-over-year earnings growth rate of 4.58%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that BMO is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).