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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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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 Montreal in Focus
Based in Toronto, Bank of Montreal (BMO) is in the Finance sector, and so far this year, shares have seen a price change of -3.75%. The bank is currently shelling out a dividend of $0.8 per share, with a dividend yield of 4.27%. This compares to the Banks - Foreign industry's yield of 2.1% and the S&P 500's yield of 1.47%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.18 is up 1% from last year. In the past five-year period, Bank of Montreal has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.39%. 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. Bank of Montreal's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BMO expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $6.11 per share, representing a year-over-year earnings growth rate of 6.63%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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 have to be mindful 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 is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Bank Of Montreal (BMO) : Free Stock Analysis Report
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