Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Life Storage in Focus
Life Storage (LSI - Free Report) is headquartered in Williamsville, and is in the Finance sector. The stock has seen a price change of 1.3% since the start of the year. The self storage real estate investment trust is currently shelling out a dividend of $4.15 per share, with a dividend yield of 74%. This compares to the REIT and Equity Trust - Other industry's yield of 2.45% and the S&P 500's yield of 1%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.90 is up 14.2% from last year. Life Storage has increased its dividend 0 times on a year-over-year basis over the last 5 years for an average annual increase of 4%. 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. Life Storage's current payout ratio is 8.26%, meaning it paid out 8.26% of its trailing 12-month EPS as dividend.
LSI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4 per share, representing a year-over-year earnings growth rate of 5.55%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that LSI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).