Why Toronto-Dominion Bank (TD) is a Top Dividend Stock for Your Portfolio
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Toronto-Dominion Bank in Focus
Based in Toronto, Toronto-Dominion Bank (TD) is in the Finance sector, and so far this year, shares have seen a price change of 4.5%. The retail and wholesale bank is paying out a dividend of $0.62 per share at the moment, with a dividend yield of 4.21% compared to the Banks - Foreign industry's yield of 1.89% and the S&P 500's yield of 1.42%.
In terms of dividend growth, the company's current annualized dividend of $2.48 is up 7.5% from last year. Toronto-Dominion Bank has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.68%. 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. Toronto-Dominion's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
TD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $4.65 per share, which represents a year-over-year growth rate of 16.54%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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 TD 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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