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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. 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.
Royal Bank in Focus
Royal Bank (RY) is headquartered in Toronto, and is in the Finance sector. The stock has seen a price change of 1.78% since the start of the year. The bank is paying out a dividend of $0.85 per share at the moment, with a dividend yield of 4.06% compared to the Banks - Foreign industry's yield of 1.85% and the S&P 500's yield of 1.43%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.39 is up 6.4% from last year. Royal Bank has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.90%. 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. Royal Bank's current payout ratio is 54%. This means it paid out 54% of its trailing 12-month EPS as dividend.
RY is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $6.66 per share, representing a year-over-year earnings growth rate of 12.31%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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 is also 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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