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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
Royal Bank in Focus
Headquartered in Toronto, Royal Bank (RY) is a Finance stock that has seen a price change of 13.47% so far this year. The bank is currently shelling out a dividend of $0.85 per share, with a dividend yield of 3.64%. This compares to the Banks - Foreign industry's yield of 1.59% and the S&P 500's yield of 1.37%.
Looking at dividend growth, the company's current annualized dividend of $3.39 is up 6.4% from last year. In the past five-year period, Royal Bank has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.90%. 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. Royal Bank's current payout ratio is 55%, meaning it paid out 55% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, RY expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $7.74 per share, representing a year-over-year earnings growth rate of 30.52%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that RY is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Royal Bank Of Canada (RY) : Free Stock Analysis Report
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