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.
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.
Bank of America in Focus
Bank of America (BAC - Free Report) is headquartered in Charlotte, and is in the Finance sector. The stock has seen a price change of 21.43% since the start of the year. The nation's second-largest bank is currently shelling out a dividend of $0.15 per share, with a dividend yield of 2.01%. This compares to the Banks - Major Regional industry's yield of 2.77% and the S&P 500's yield of 1.93%.
In terms of dividend growth, the company's current annualized dividend of $0.60 is up 11.1% from last year. Bank of America has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 45.58%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Bank of America's current payout ratio is 22%, meaning it paid out 22% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BAC for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.86 per share, representing a year-over-year earnings growth rate of 9.58%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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, BAC 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).