All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
Bank of Nova Scotia in Focus
Based in Toronto, Bank of Nova Scotia (BNS) is in the Finance sector, and so far this year, shares have seen a price change of -10.84%. The bank is currently shelling out a dividend of $0.8 per share, with a dividend yield of 5%. This compares to the Banks - Foreign industry's yield of 3.82% and the S&P 500's yield of 1.58%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.20 is up 12% from last year. Bank of Nova Scotia has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 5.03%. 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, Bank of Nova Scotia's payout ratio is 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.
BNS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $6.48 per share, with earnings expected to increase 3.68% 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.
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. 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, BNS 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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Bank of Nova Scotia The (BNS) : Free Stock Analysis Report
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