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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 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
Headquartered in Toronto, Bank of Montreal (BMO) is a Finance stock that has seen a price change of 21.12% so far this year. Currently paying a dividend of $0.83 per share, the company has a dividend yield of 3.62%. In comparison, the Banks - Foreign industry's yield is 1.4%, while the S&P 500's yield is 1.32%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.33 is up 5.8% from last year. Over the last 5 years, Bank of Montreal has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.13%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Bank of Montreal's payout ratio is 53%, which means it paid out 53% of its trailing 12-month EPS as dividend.
BMO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $8.22 per share, with earnings expected to increase 43.46% from the year ago period.
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.
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. 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 BMO is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).