Royal Bank (RY) Could Be a Great Choice

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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 -0.91%. The bank is currently shelling out a dividend of $1.11 per share, with a dividend yield of 2.62%. This compares to the Banks - Foreign industry's yield of 2.47% and the S&P 500's yield of 1.35%.

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.

Earnings growth looks solid for RY for this fiscal year. The Zacks Consensus Estimate for 2026 is $11.17 per share, representing a year-over-year earnings growth rate of 8.45%.

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that RY 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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This article originally published on Zacks Investment Research (zacks.com).

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Source Zacks-com