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.
Bank of America in Focus
Based in Charlotte, Bank of America (BAC) is in the Finance sector, and so far this year, shares have seen a price change of 18.22%. The nation's second-largest bank is paying out a dividend of $0.15 per share at the moment, with a dividend yield of 2.06% compared to the Banks - Major Regional industry's yield of 2.92% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $0.60 is up 11.1% from last year. In the past five-year period, Bank of America has increased its dividend 4 times on a year-over-year basis for an average annual increase of 55.13%. 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. Bank of America's current payout ratio is 23%. This means it paid out 23% of its trailing 12-month EPS as dividend.
BAC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.85 per share, with earnings expected to increase 9.20% from the year ago period.
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. However, not all companies offer 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).
Bank of America Corporation (NYSE:BAC
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