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 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.

Canadian Imperial Bank in Focus

Based in Toronto, Canadian Imperial Bank (CM) is in the Finance sector, and so far this year, shares have seen a price change of 38.31%. The bank and financial services company is currently shelling out a dividend of $0.67 per share, with a dividend yield of 4.01%. This compares to the Banks - Foreign industry's yield of 4.07% and the S&P 500's yield of 1.44%.

Looking at dividend growth, the company's current annualized dividend of $2.67 is up 0.6% from last year. Canadian Imperial Bank has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.05%. 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. Canadian Imperial Bank's current payout ratio is 51%, meaning it paid out 51% of its trailing 12-month EPS as dividend.

CM is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $5.51 per share, representing a year-over-year earnings growth rate of 1.29%.

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. It's important to keep in mind that not all companies provide 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CM 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).