Introduction
Prior to making an investment in any stock, I always proceed with a clear investment objective in mind. However, my objectives are not necessarily the same every time I invest in a stock. There are times when my objective is current income, and in contrast there are other times when my objective might be maximum total return. At other times, I may be seeking a combination of both income and growth. My investment objective is determined by what my needs are at the time.
Additionally, I do not engage in vague or generalized objectives such as trying to beat the market. Instead, I endeavor to have an exact and realistic objective and precisely estimated return calculation that is commensurate with the type of common stock I may be examining. For example, if I was looking for maximum current yield and reasonable safety in order to provide a specific level of current spendable income, that is where my focus and analysis would be. With this need for a current income objective, I might turn to researching high-yield low-growth utility stocks.
However, and this is the crux of my position, I would not invest in a utility stock thinking that I will outperform the market in either capital appreciation or total return. Utilities tend to be slow growers, and as such, do not usually produce high capital appreciation. On the other hand, when I invest in a utility stock, I fully expect to receive significantly more income than the market would provide. Consequently, I would measure the success or failure of this investment based solely on the dividend income I expect to receive.
In contrast, if I was looking for high total return, my focus would primarily be on the earnings growth potential of the stock I was considering. If I was desirous of generating a high total return capable of beating the market, I would look for a company that I was confident would generate a higher earnings growth rate than the market. And most importantly, in either case, whether I was investing for current income or total return, fair and sound current valuation would have to be evident. Fair valuation is the universal principle that prudent investors are wise to consider regardless of the type of investment or return objective that is desired.
Once my general investment objective is clearly defined and established, my focus then turns toward a specific and precise return calculation. In other words, I never invest in a stock merely hoping that it might go up. Instead, I always have a specific return number and objective that I expect my investment in a specific stock can provide. Moreover, my precise return expectations are always based on rational assumptions which I input into standard rate of return calculation formulas.  These rates of return assumptions, based on rational inputs, become my benchmark that I closely and continuously monitor and evaluate.
Ameriprise Financial Inc: Double Digit Total Return Potential and Dividend Growth
The research candidate I am reviewing in this article, Ameriprise Financial Inc (AMP), is offered for the consideration of those retired or dividend growth investors in need of above-average total return. In the long run, the future total rate of return that an investor can expect from a given stock will be a function of three critical inputs. These are the future rate of change of earnings growth, the future rate of change of dividends (if the company pays one) assumed to be consistent with earnings growth, and finally the valuation that was paid at time of purchase. Total return is comprised of two components capital appreciation plus dividend income (if any).
In the specific case of Ameriprise, the consensus earnings growth rate out to fiscal year-ending 12/31/2017 is 13.4%. Â However, the 3 to 5-year longer-term earnings growth expectation is even higher at 19.4%. That is significantly above expectations for the market, and therefore, a very attractive opportunity for potentially achieving long-term double-digit total returns.
