Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
TD Ameritrade in Focus
Headquartered in Omaha, TD Ameritrade (AMTD - Free Report) is a Finance stock that has seen a price change of 3.57% so far this year. Currently paying a dividend of $0.3 per share, the company has a dividend yield of 2.37%. In comparison, the Financial - Investment Bank industry's yield is 0.91%, while the S&P 500's yield is 2.03%.
Looking at dividend growth, the company's current annualized dividend of $1.20 is up 42.9% from last year. TD Ameritrade has increased its dividend 5 times on a year-over-year basis over the last 5 years 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.
Earnings growth looks solid for AMTD for this fiscal year. The Zacks Consensus Estimate for 2019 is $4 per share, representing a year-over-year earnings growth rate of 19.76%.
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, 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).