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 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.
Ameriprise Financial Services in Focus
Based in Minneapolis, Ameriprise Financial Services (AMP - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 41.53%. The financial services company is paying out a dividend of $0.9 per share at the moment, with a dividend yield of 2.44% compared to the Financial - Investment Management industry's yield of 2.95% and the S&P 500's yield of 1.89%.
Looking at dividend growth, the company's current annualized dividend of $3.60 is up 2% from last year. Over the last 5 years, Ameriprise Financial Services has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.09%. 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. Right now, Ameriprise's payout ratio is 24%, which means it paid out 24% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AMP expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $15.90 per share, with earnings expected to increase 6.43% from the year ago period.
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.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AMP 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).