All investors love getting big returns from their portfolio, whether it’s through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Bank of America in Focus
Bank of America (BAC) is headquartered in Charlotte, and is in the Finance sector. The stock has seen a price change of 15.18% since the start of the year. Currently paying a dividend of $0.15 per share, the company has a dividend yield of 2.11%. In comparison, the Banks – Major Regional industry’s yield is 2.9%, while the S&P 500’s yield is 1.97%.
Looking at dividend growth, the company’s current annualized dividend of $0.60 is up 11.1% from last year. Over the last 5 years, Bank of America has increased its dividend 4 times on a year-over-year basis for an average annual increase of 55.13%. 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 America’s current payout ratio is 23%. This means it paid out 23% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BAC for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.84 per share, which represents a year-over-year growth rate of 8.81%.
Bottom Line
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.
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. 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, BAC 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).
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