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.
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.
Ameriprise Financial Services in Focus
Based in Minneapolis, Ameriprise Financial Services (AMP - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 37.35%. The financial services company is paying out a dividend of $0.97 per share at the moment, with a dividend yield of 2.71% compared to the Financial - Investment Management industry's yield of 2.98% and the S&P 500's yield of 2.03%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.88 is up 9.9% from last year. Ameriprise Financial Services has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.09%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Ameriprise's current payout ratio is 24%, meaning it paid out 24% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AMP for this fiscal year. The Zacks Consensus Estimate for 2019 is $15.90 per share, which represents a year-over-year growth rate of 6.43%.
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.
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. That said, they can take comfort from the fact that AMP is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).