Is Bank of New York Mellon (BK) a Great Dividend Play?

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 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.

Bank of New York Mellon in Focus

Based in New York, Bank of New York Mellon (BK) is in the Finance sector, and so far this year, shares have seen a price change of -4.47%. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.18%. In comparison, the Banks - Major Regional industry's yield is 2.41%, while the S&P 500's yield is 1.81%.

Looking at dividend growth, the company's current annualized dividend of $1.12 is up 30.2% from last year. Bank of New York Mellon has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 10.11%. 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. Bank of New York Mellon's current payout ratio is 24%. This means it paid out 24% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for BK for this fiscal year. The Zacks Consensus Estimate for 2018 is $4.15 per share, representing a year-over-year earnings growth rate of 15.28%.

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.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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 BK 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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