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.
Royal Bank in Focus
Based in Toronto, Royal Bank (RY - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 8.19%. The bank is currently shelling out a dividend of $0.78 per share, with a dividend yield of 4.2%. This compares to the Banks - Foreign industry's yield of 3.47% and the S&P 500's yield of 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.12 is up 6.3% from last year. Royal Bank has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 4.42%. 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. Royal Bank's current payout ratio is 46%. This means it paid out 46% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, RY expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $6.76 per share, representing a year-over-year earnings growth rate of 3.52%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that RY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).