Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Toronto-Dominion Bank in Focus
Based in Toronto, Toronto-Dominion Bank (TD - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 8.29%. Currently paying a dividend of $0.57 per share, the company has a dividend yield of 4.2%. In comparison, the Banks - Foreign industry's yield is 3.57%, while the S&P 500's yield is 1.97%.
In terms of dividend growth, the company's current annualized dividend of $2.26 is up 11% from last year. In the past five-year period, Toronto-Dominion Bank has increased its dividend 4 times on a year-over-year basis for an average annual increase of 6.50%. 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. Toronto-Dominion's current payout ratio is 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.
TD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $5.15 per share, with earnings expected to increase 2.39% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 TD is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).