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Are You Looking for a High-Growth Dividend Stock?

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Toronto-Dominion Bank in Focus

Headquartered in Toronto, Toronto-Dominion Bank (TD) is a Finance stock that has seen a price change of -16.71% so far this year. The retail and wholesale bank is paying out a dividend of $0.69 per share at the moment, with a dividend yield of 4.33% compared to the Banks - Foreign industry's yield of 4.55% and the S&P 500's yield of 1.67%.

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Taking a look at the company's dividend growth, its current annualized dividend of $2.77 is up 10.4% from last year. Over the last 5 years, Toronto-Dominion Bank has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.26%. 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. Toronto-Dominion's current payout ratio is 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.

TD is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $6.40 per share, which represents a year-over-year growth rate of 1.75%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TD 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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