All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Ameriprise Financial Services in Focus
Headquartered in Minneapolis, Ameriprise Financial Services (AMP - Free Report) is a Finance stock that has seen a price change of 23.33% so far this year. The financial services company is paying out a dividend of $0.97 per share at the moment, with a dividend yield of 3.01% compared to the Financial - Investment Management industry's yield of 2.94% and the S&P 500's yield of 1.92%.
In terms of dividend growth, the company's 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 11.15%. 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. Ameriprise's current payout ratio is 25%, meaning it paid out 25% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AMP expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $16.06 per share, representing a year-over-year earnings growth rate of 7.50%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. 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 #2 (Buy).