All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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.
Bank of Montreal in Focus
Based in Toronto, Bank of Montreal (BMO) is in the Finance sector, and so far this year, shares have seen a price change of 7.38%. The bank is currently shelling out a dividend of $0.78 per share, with a dividend yield of 4.45%. This compares to the Banks - Foreign industry's yield of 3.47% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $3.12 is up 6.7% from last year. Bank of Montreal has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 3.51%. 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. Right now, Bank of Montreal's payout ratio is 42%, which means it paid out 42% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for BMO for this fiscal year. The Zacks Consensus Estimate for 2019 is $7.15 per share, with earnings expected to increase 2.29% from the year ago period.
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.
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. That said, they can take comfort from the fact that BMO 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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Bank Of Montreal (BMO) : Free Stock Analysis Report
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