Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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.
Sun Communities in Focus
Headquartered in Southfield, Sun Communities (SUI - Free Report) is a Finance stock that has seen a price change of 6% so far this year. The real estate investment trust is paying out a dividend of $2.8 per share at the moment, with a dividend yield of 66% compared to the REIT and Equity Trust - Residential industry's yield of 10.55% and the S&P 500's yield of 0.71%.
Looking at dividend growth, the company's current annualized dividend of $4.01 is up 1.7% from last year. Over the last 5 years, Sun Communities has increased its dividend 6 times on a year-over-year basis for an average annual increase of 3%. 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 9.40%. This means it paid out 9.40% of its trailing 12-month EPS as dividend.
SUI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $2.84 per share, with earnings expected to increase 4.94% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. That said, they can take comfort from the fact that SUI is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).