Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Based in Toronto, Royal Bank (RY) is in the Finance sector, and so far this year, shares have seen a price change of 42.32%. Currently paying a dividend of $1.11 per share, the company has a dividend yield of 2.58%. In comparison, the Banks - Foreign industry's yield is 2.65%, while the S&P 500's yield is 1.4%.
Looking at dividend growth, the company's current annualized dividend of $4.42 is up 2.9% from last year. Over the last 5 years, Royal Bank has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.79%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Royal Bank's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, RY expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $11.17 per share, which represents a year-over-year growth rate of 8.45%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, RY 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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Royal Bank Of Canada (RY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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