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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Target in Focus
Target (TGT - Free Report) is headquartered in Minneapolis, and is in the Retail-Wholesale sector. The stock has seen a price change of 25.01% since the start of the year. The retailer is currently shelling out a dividend of $0.64 per share, with a dividend yield of 3.1%. This compares to the Retail - Discount Stores industry's yield of 0.93% and the S&P 500's yield of 1.89%.
Looking at 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 6.39%. 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, Target's payout ratio is 46%, which means it paid out 46% 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 $5.92 per share, representing a year-over-year earnings growth rate of 9.83%.
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, TGT 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).