All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
TJX in Focus
Headquartered in Framingham, TJX (TJX - Free Report) is a Retail-Wholesale stock that has seen a price change of -32.77% so far this year. The parent of T.J. Maxx, Marshalls and other stores is paying out a dividend of $0.23 per share at the moment, with a dividend yield of 2.24% compared to the Retail - Discount Stores industry's yield of 0.87% and the S&P 500's yield of 2.63%.
Looking at dividend growth, the company's current annualized dividend of $0.92 is up 4% from last year. In the past five-year period, TJX has increased its dividend 5 times on a year-over-year basis for an average annual increase of 22.49%. 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. Right now, TJX's payout ratio is 34%, which means it paid out 34% of its trailing 12-month EPS as dividend.
TJX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $2.84 per share, which represents a year-over-year growth rate of 6.37%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, TJX 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).