All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 8.19%. Currently paying a dividend of $0.3 per share, the company has a dividend yield of 2.27%. In comparison, the Financial - Investment Bank industry's yield is 1.01%, while the S&P 500's yield is 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.20 is up 42.9% from last year. In the past five-year period, TD Ameritrade has increased its dividend 5 times on a year-over-year basis for an average annual increase of 16.25%. 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. TD Ameritrade's current payout ratio is 31%, meaning it paid out 31% 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 $3.99 per share, with earnings expected to increase 19.46% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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, 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).