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.
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.
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 23.05% so far this year. Currently paying a dividend of $0.97 per share, the company has a dividend yield of 3.02%. In comparison, the Financial - Investment Management industry's yield is 3%, while the S&P 500's yield is 1.96%.
Looking at dividend growth, the company's current annualized dividend of $3.88 is up 9.9% from last year. In the past five-year period, Ameriprise Financial Services has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.15%. 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. Ameriprise's current payout ratio is 25%, meaning it paid out 25% of its trailing 12-month EPS as dividend.
AMP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $16.05 per share, with earnings expected to increase 7.43% 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. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. 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, AMP 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).