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This is Why Sun Communities (SUI) is a Great Dividend Stock

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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.

Sun Communities in Focus

Headquartered in Southfield, Sun Communities (SUI - Free Report) is a Finance stock that has seen a price change of -16.38% so far this year. The real estate investment trust is currently shelling out a dividend of $0.88 per share, with a dividend yield of 2%. This compares to the REIT and Equity Trust - Residential industry's yield of 2.54% and the S&P 500's yield of 1.51%.

Looking at dividend growth, the company's current annualized dividend of $3.52 is up 6% from last year. In the past five-year period, Sun Communities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.53%. 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. Sun Communities's current payout ratio is 54%. This means it paid out 54% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for SUI for this fiscal year. The Zacks Consensus Estimate for 2022 is $7.31 per share, representing a year-over-year earnings growth rate of 12.29%.

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. However, not all companies offer a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 SUI 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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