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.
Bank of Montreal in Focus
Headquartered in Toronto, Bank of Montreal (BMO) is a Finance stock that has seen a price change of 16.5% so far this year. Currently paying a dividend of $0.75 per share, the company has a dividend yield of 3.92%. In comparison, the Banks - Foreign industry's yield is 3.37%, while the S&P 500's yield is 1.85%.
In terms of dividend growth, the company's current annualized dividend of $2.99 is up 2.2% 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 2.82%. 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. Bank of Montreal's current payout ratio is 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BMO expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $7.12 per share, which represents a year-over-year growth rate of 1.86%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, BMO 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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Bank Of Montreal (BMO) : Free Stock Analysis Report
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