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.
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.
Target in Focus
Headquartered in Minneapolis, Target (TGT - Free Report) is a Retail-Wholesale stock that has seen a price change of 12.94% so far this year. The retailer is currently shelling out a dividend of $0.64 per share, with a dividend yield of 3.43%. This compares to the Retail - Discount Stores industry's yield of 0.98% and the S&P 500's yield of 1.95%.
In terms of dividend growth, the company's current annualized dividend of $2.56 is up 1.6% from last year. In the past five-year period, Target has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.44%. 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. Target's current payout ratio is 47%, meaning it paid out 47% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TGT expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.81 per share, which represents a year-over-year growth rate of 7.79%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. 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, TGT 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).