Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
Target in Focus
Headquartered in Minneapolis, Target (TGT) is a Retail-Wholesale stock that has seen a price change of 69.21% so far this year. Currently paying a dividend of $0.66 per share, the company has a dividend yield of 2.36%. In comparison, the Retail - Discount Stores industry's yield is 0.84%, while the S&P 500's yield is 1.91%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.64 is up 4.8% from last year. In the past five-year period, Target has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.39%. 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. Target's current payout ratio is 43%. This means it paid out 43% of its trailing 12-month EPS as dividend.
TGT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $6.15 per share, representing a year-over-year earnings growth rate of 14.10%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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, TGT presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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