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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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Bank of Nova Scotia in Focus
Headquartered in Toronto, Bank of Nova Scotia (BNS) is a Finance stock that has seen a price change of 15.3% so far this year. The bank is paying out a dividend of $0.73 per share at the moment, with a dividend yield of 4.66% compared to the Banks - Foreign industry's yield of 1.69% and the S&P 500's yield of 1.36%.
Looking at dividend growth, the company's current annualized dividend of $2.90 is up 8.5% from last year. Over the last 5 years, Bank of Nova Scotia has increased its dividend 3 times on a year-over-year basis for an average annual increase of 5.12%. 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. Bank of Nova Scotia's current payout ratio is 60%, meaning it paid out 60% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BNS for this fiscal year. The Zacks Consensus Estimate for 2021 is $6.02 per share, with earnings expected to increase 50.88% 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.
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, 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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