Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Northern Trust in Focus
Headquartered in Chicago, Northern Trust (NTRS) is a Finance stock that has seen a price change of 4.28% so far this year. The wealth management firm is currently shelling out a dividend of $0.6 per share, with a dividend yield of 2.75%. This compares to the Banks - Major Regional industry's yield of 2.9% and the S&P 500's yield of 1.94%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.40 is up 23.7% from last year. Northern Trust has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.25%. 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. Right now, Northern Trust's payout ratio is 36%, which means it paid out 36% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NTRS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $6.72 per share, which represents a year-over-year growth rate of 1.20%.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, NTRS 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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Northern Trust Corporation (NTRS) : Free Stock Analysis Report
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