All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
TD Ameritrade in Focus
Based in Omaha, TD Ameritrade (AMTD - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 7.5%. The online brokerage is currently shelling out a dividend of $0.3 per share, with a dividend yield of 2.28%. This compares to the Financial - Investment Bank industry's yield of 0.91% and the S&P 500's yield of 1.93%.
Looking at 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 16.25%. 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. 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 $4.07 per share, representing a year-over-year earnings growth rate of 21.86%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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).