There are several factors to consider when searching for a good dividend stock. Obviously, one of them is a high dividend, but you also want to look at the yield, the payout ratio, and how sustainable that payout is. You also want stability -- a company that has consistently delivered steady or increasing dividends year after year.
Ameriprise Financial (AMP 1.48%) ticks off all those boxes. In fact, Ameriprise has had 14 straight years of annual dividend increases, making it well on its way to becoming a Dividend Aristocrat -- a stock with at least 25 straight years of dividend increases.
A $1.04 per share quarterly dividend
As a dividend stock, Ameriprise is a pretty good one. The company is one of the largest wealth managers in the U.S., and it also has an asset management and retirement solutions/insurance business. But most of its revenue -- about two-thirds -- comes from its Advice and Wealth Management business.
The company pays out a quarterly dividend of $1.04 per share -- or $4.16 per share annually -- which is among the best in the financial sector. If you owned 250 shares of the stock, that would be $1,040 per year in dividend income. Since 2015, the dividend has increased by 55%.
The other key indicators are also solid. The dividend yield -- which is the percentage of the share price that goes to the annual dividend -- is 2.16%, which is higher than the average for stocks in the S&P 500. The payout ratio -- which is the percentage of net earnings that goes to the dividend -- is 29.8%, which is a good number, as anything too high suggests the company is paying too much for the dividend, perhaps at the expense of other needs.
The stability and consistency are also there, as the company has increased its dividend for the past 14 straight years -- through the Great Recession and the pandemic of 2020. But the question is: Is Ameriprise in a position to continue to generate a great dividend?
Is it sustainable?
In a difficult quarter for the industry, Ameriprise reported adjusted earnings per share of $4.27, a 1% year-over-year increase, excluding a previously announced $2.80 per share unlocking effect from an annual review of insurance and annuity valuation assumptions. Revenue was essentially flat at $1.67 billion, with net flows into both the wealth management and asset management businesses up year over year, offset somewhat by the effects of lower interest rates.
The company is also very efficient, with a return on equity of 30.6% and strong financials. In the third quarter, it had $1.7 billion in excess capital and $2.8 billion in available liquidity. It's what sets the company apart among competitors and makes it a good dividend stock.
"Our capital strength and free cash flow differentiate Ameriprise and provide important flexibility -- today and looking forward. We're one of [the] few financial services firms to increase our dividend and resume share repurchases this year while maintaining a strong balance sheet," Jim Cracchiolo, chairman and CEO, said in the third-quarter earnings report.
The stock price is up 15% year to date, and analysts forecast double-digit earnings growth next year. As one of the market leaders in the space, with its strong capital position, Ameriprise should continue to increase dividends for years to come.