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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. But 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 14.09% so far this year. The bank is paying out a dividend of $0.85 per share at the moment, with a dividend yield of 3.62% compared to the Banks - Foreign industry's yield of 1.4% and the S&P 500's yield of 1.32%.
In terms of dividend growth, the company's current annualized dividend of $3.39 is up 6.4% from last year. Royal Bank has increased its dividend 4 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 55%, meaning it paid out 55% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for RY for this fiscal year. The Zacks Consensus Estimate for 2021 is $7.80 per share, which represents a year-over-year growth rate of 31.53%.
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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, RY 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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Royal Bank Of Canada (RY) : Free Stock Analysis Report
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