Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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
Based in Charlotte, Bank of America (BAC - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 12.66%. The nation's second-largest bank is paying out a dividend of $0.15 per share at the moment, with a dividend yield of 2.16% compared to the Banks - Major Regional industry's yield of 2.9% and the S&P 500's yield of 2%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.60 is up 11.1% from last year. Over the last 5 years, Bank of America has increased its dividend 4 times on a year-over-year basis for an average annual increase of 45.58%. 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, Bank of America's payout ratio is 22%, which means it paid out 22% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BAC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.86 per share, which represents a year-over-year growth rate of 9.58%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 have to be mindful 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).