Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
Bank of Montreal in Focus
Bank of Montreal (BMO - Free Report) is headquartered in Toronto, and is in the Finance sector. The stock has seen a price change of 0.15% since the start of the year. Currently paying a dividend of $0.78 per share, the company has a dividend yield of 4.03%. In comparison, the Banks - Foreign industry's yield is 3.15%, while the S&P 500's yield is 1.78%.
In terms of dividend growth, the company's current annualized dividend of $3.13 is up 1.9% from last year. Bank of Montreal has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 4.82%. 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. Right now, Bank of Montreal's payout ratio is 44%, which means it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BMO for this fiscal year. The Zacks Consensus Estimate for 2020 is $7.47 per share, with earnings expected to increase 5.21% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BMO is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).