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.
Target in Focus
Based in Minneapolis, Target (TGT) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of 60.83%. The retailer is currently shelling out a dividend of $0.66 per share, with a dividend yield of 2.48%. This compares to the Retail - Discount Stores industry's yield of 0.86% and the S&P 500's yield of 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.64 is up 4.8% from last year. Target has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.39%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Target's current payout ratio is 43%. This means it paid out 43% of its trailing 12-month EPS as dividend.
TGT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $6.15 per share, representing a year-over-year earnings growth rate of 14.10%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TGT 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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