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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Telephone & Data Systems in Focus
Headquartered in Chicago, Telephone & Data Systems (TDS) is a Utilities stock that has seen a price change of 14.89% so far this year. Currently paying a dividend of $0.16 per share, the company has a dividend yield of 2%. In comparison, the Wireline - National industry's yield is 2.02%, while the S&P 500's yield is 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.64 is up 3.2% from last year. Telephone & Data Systems has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.74%. 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, TDS's payout ratio is 84%, which means it paid out 84% of its trailing 12-month EPS as dividend.
TDS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $0.68 per share, with earnings expected to increase 28.30% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TDS presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #1 (Strong Buy).
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Telephone and Data Systems, Inc. (TDS) : Free Stock Analysis Report
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