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This is Why NexPoint Residential Trust Inc. (NXRT) is a Great Dividend Stock

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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.

NexPoint Residential Trust Inc. In Focus

NexPoint Residential Trust Inc. (NXRT - Free Report) is headquartered in Dallas, and is in the Finance sector. The stock has seen a price change of 6.43% since the start of the year. Currently paying a dividend of $0.34 per share, the company has a dividend yield of 3.03%. In comparison, the REIT and Equity Trust - Residential industry's yield is 3.24%, while the S&P 500's yield is 1.38%.

Looking at dividend growth, the company's current annualized dividend of $1.37 is up 7.1% from last year. NexPoint Residential Trust Inc. has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 11.33%. 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. NexPoint Residential Trust Inc.'s current payout ratio is 55%, meaning it paid out 55% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for NXRT for this fiscal year. The Zacks Consensus Estimate for 2021 is $2.57 per share, representing a year-over-year earnings growth rate of 4.05%.

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. However, not all companies offer 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 have to be mindful 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 NXRT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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