Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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.
Toronto-Dominion Bank in Focus
Headquartered in Toronto, Toronto-Dominion Bank (TD - Free Report) is a Finance stock that has seen a price change of 11.38% so far this year. The retail and wholesale bank is currently shelling out a dividend of $0.49 per share, with a dividend yield of 4%. This compares to the Banks - Foreign industry's yield of 3.03% and the S&P 500's yield of 1.92%.
In terms of dividend growth, the company's current annualized dividend of $2.22 is up 9% from last year. Toronto-Dominion Bank has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 5.07%. 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. Toronto-Dominion's current payout ratio is 39%. This means it paid out 39% of its trailing 12-month EPS as dividend.
TD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.19 per share, which represents a year-over-year growth rate of 3.18%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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, TD 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).