WWhether through stocks, bonds, ETFs or other types of securities, all investors love to see their portfolios generate big returns. However, when you are an income investor, your main goal is to generate 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 profits paid to shareholders, and investors often view it by its dividend yield, a measure that measures the dividend as a percentage of the current stock price. Numerous academic studies show that dividends are a significant part of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
The Canadian Imperial Bank in focus
The Canadian Imperial Bank (CM) is headquartered in Toronto and is in the finance industry. The stock has seen a 17.89% price change since the start of the year. Currently paying a dividend of $ 1.12 per share, the company has a dividend yield of 4.46%. In comparison, the return of banks – foreign industry is 1.76%, while the return of the S&P 500 is 1.38%.
In terms of dividend growth, the company’s current annualized dividend of $ 4.49 is up 3.1% from last year. The Canadian Imperial Bank has increased its dividend 4 times year over year over the past 5 years for an average annual increase of 4.83%. Any future dividend growth will depend on both earnings growth and the payout ratio of the company; a payout ratio is the proportion of a company’s annual earnings per share that it pays out as a dividend. Currently, the Canadian Imperial Bank’s payout ratio is 60%, which means that it has paid out 60% of its past 12-month EPS as a dividend.
Profit growth looks solid for CM for this fiscal year. Zacks’ consensus estimate for 2021 is $ 9.88 per share, which represents a year-over-year growth rate of 37.03%.
Whether it’s dramatically improving earnings from equity investments and reducing overall portfolio risk or offering tax benefits, investors love dividends for a variety of reasons. However, not all companies offer quarterly payment.
Large, established companies that have safer earnings are often considered the best dividend options, but it is quite rare to see high growth companies or tech start-ups offering a dividend to their shareholders. Income investors should be aware that high yielding stocks tend to struggle during times of rising interest rates. That said, they can be reassured that CM is not only an attractive dividend game, but also represents a compelling investment opportunity with a Zacks ranking of # 1 (strong buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.