Why TD Ameritrade (AMTD) is a Top Dividend Stock for Your Portfolio

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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.

TD Ameritrade in Focus

Headquartered in Omaha, TD Ameritrade (AMTD) is a Finance stock that has seen a price change of 13.09% so far this year. The online brokerage is currently shelling out a dividend of $0.3 per share, with a dividend yield of 2.17%. This compares to the Financial - Investment Bank industry's yield of 0.78% and the S&P 500's yield of 1.97%.

Looking at dividend growth, the company's current annualized dividend of $1.20 is up 42.9% from last year. Over the last 5 years, TD Ameritrade has increased its dividend 5 times on a year-over-year basis for an average annual increase of 15.10%. 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. TD Ameritrade's current payout ratio is 25%, meaning it paid out 25% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for AMTD for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.92 per share, with earnings expected to increase 17.37% from the year ago period.

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. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AMTD 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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