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.
Telephone & Data Systems in Focus
Telephone & Data Systems (TDS) is headquartered in Chicago, and is in the Utilities sector. The stock has seen a price change of -6.91% since the start of the year. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 2.18%. In comparison, the Wireline - National industry's yield is 2.17%, while the S&P 500's yield is 1.88%.
Looking at dividend growth, the company's current annualized dividend of $0.66 is up 3.1% from last year. In the past five-year period, Telephone & Data Systems has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.39%. 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. Right now, TDS's payout ratio is 50%, which means it paid out 50% of its trailing 12-month EPS as dividend.
TDS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.23 per share, representing a year-over-year earnings growth rate of 5.13%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that TDS 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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Telephone and Data Systems, Inc. (TDS) : Free Stock Analysis Report
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