All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Telephone & Data Systems in Focus
Based in Chicago, Telephone & Data Systems (TDS - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of -16.56%. The parent of U.S. Cellular and TDS Telecom is paying out a dividend of $0.17 per share at the moment, with a dividend yield of 2.43% compared to the Wireline - National industry's yield of 2.41% and the S&P 500's yield of 1.99%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.66 is up 3.1% from last year. In the past five-year period, Telephone & Data Systems has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.39%. 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. TDS's current payout ratio is 50%. This means it paid out 50% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, TDS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.43 per share, which represents a year-over-year growth rate of 22.22%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TDS presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).