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 -1.05% since the start of the year. The bank is paying out a dividend of $0.82 per share at the moment, with a dividend yield of 4.18% compared to the Banks - Foreign industry's yield of 3.53% and the S&P 500's yield of 1.75%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.20 is up 4.2% from last year. Over the last 5 years, Bank of Montreal has increased its dividend 4 times on a year-over-year basis for an average annual increase of 5.80%. 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. Bank of Montreal's current payout ratio is 44%. This means it paid out 44% of its trailing 12-month EPS as dividend.
BMO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $7.47 per share, representing a year-over-year earnings growth rate of 5.21%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 BMO is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).