Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Toronto-Dominion Bank in Focus
Toronto-Dominion Bank (TD - Free Report) is headquartered in Toronto, and is in the Finance sector. The stock has seen a price change of 12.43% since the start of the year. The retail and wholesale bank is currently shelling out a dividend of $0.57 per share, with a dividend yield of 4.04%. This compares to the Banks - Foreign industry's yield of 3.54% and the S&P 500's yield of 1.95%.
In terms of dividend growth, the company's current annualized dividend of $2.26 is up 11% from last year. Toronto-Dominion Bank has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 6.50%. 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. Toronto-Dominion's current payout ratio is 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for TD for this fiscal year. The Zacks Consensus Estimate for 2019 is $5.08 per share, representing a year-over-year earnings growth rate of 0.99%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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, TD presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).