Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Northern Trust in Focus
Based in Chicago, Northern Trust (NTRS) is in the Finance sector, and so far this year, shares have seen a price change of 3.12%. The wealth management firm is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 2.14% compared to the Banks - Major Regional industry's yield of 2.41% and the S&P 500's yield of 1.8%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.20 is up 37.5% from last year. Over the last 5 years, Northern Trust has increased its dividend 4 times on a year-over-year basis for an average annual increase of 7.07%. 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. Northern Trust's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.
NTRS is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $6.67 per share, representing a year-over-year earnings growth rate of 38.10%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, NTRS 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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Northern Trust Corporation (NTRS) : Free Stock Analysis Report
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