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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
The Bank of New York Mellon Corporation in Focus
The Bank of New York Mellon Corporation (BK) is headquartered in New York, and is in the Finance sector. The stock has seen a price change of -3.93% since the start of the year. The company is currently shelling out a dividend of $0.42 per share, with a dividend yield of 3.84%. This compares to the Banks - Major Regional industry's yield of 4.15% and the S&P 500's yield of 1.67%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.68 is up 18.3% from last year. The Bank of New York Mellon Corporation has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 6.45%. 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. The Bank of New York Mellon Corporation's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.
BK is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $4.87 per share, representing a year-over-year earnings growth rate of 6.10%.
Bottom Line
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, BK is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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