All investors like to get great returns from their portfolios, whether it be through stocks, bonds, ETFs or other types of securities. However, when you are an income investor, your primary focus is to generate a steady cash flow from each of your liquid investments.
The cash flow can come from bond interest, interest from other types of investments, and of course, dividends. Dividend is the distribution of company profits paid to shareholders; It is often viewed in terms of dividend yield, which is a metric that measures dividends as a percentage of the current stock price. Several academic studies show that dividends make up large parts of long-term returns, and in many cases, dividend contributions exceed one-third of total returns.
Bank of Nova Scotia under the microscope
Bank of Nova Scotia (BNS – Free Report) is headquartered in Toronto, and is headquartered in the financial sector. The stock has seen a -0.36% change in price since the beginning of the year. The bank is paying a dividend of $0.71 per share right now, with a dividend yield of 4.38% compared to the banks — foreign industry yield of 2.77% and the S&P 500 of 1.32%.
Looking at earnings growth, the company’s current annual dividend of $3.13 is 9.6% up from last year. Over the past five years, Bank of Nova Scotia has increased its earnings 3 times year on year with an average annual increase of 5.18%. Looking ahead, future dividend growth will depend on dividend growth and the payout ratio, which is the ratio of the company’s annual earnings per share that you pay out as dividends. Currently, Bank of Nova Scotia has a 45% payout, which means it paid 45% of 12-month overdue EPS as dividend.
BNS expects earnings to expand this fiscal year as well. Zacks Consensus’ estimate for 2022 is $6.66 per share, which represents an annualized earnings growth rate of 6.56%.
Investors love dividends for many reasons; They significantly improve stock investment earnings, reduce overall portfolio risk, and carry tax advantages, among other things. But, not every company makes quarterly payments.
For example, it is a rare occurrence when a tech start-up or a large-growth company offers its shareholders a dividend. It’s common to see larger companies with more established profits paying dividends. Income investors should be aware of the fact that high-yield stocks tend to struggle during periods of high interest rates. However, they can take comfort from the fact that BNS is not only an attractive dividend game, but also a compelling investment opportunity with a Zacks rating of #1 (strong buy).