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.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.

Bank of Montreal in Focus

Bank of Montreal (BMO) is headquartered in Toronto, and is in the Finance sector. The stock has seen a price change of 18.85% since the start of the year. The bank is currently shelling out a dividend of $0.76 per share, with a dividend yield of 3.92%. This compares to the Banks - Foreign industry's yield of 3.08% and the S&P 500's yield of 1.93%.

Looking at dividend growth, the company's current annualized dividend of $3.05 is up 4.3% from last year. Bank of Montreal has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 1.72%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Bank of Montreal's current payout ratio is 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for BMO for this fiscal year. The Zacks Consensus Estimate for 2019 is $7.33 per share, representing a year-over-year earnings growth rate of 4.79%.

Bottom Line

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.

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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that BMO 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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