Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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.
Prologis in Focus
Headquartered in San Francisco, Prologis (PLD - Free Report) is a Finance stock that has seen a price change of 9.1% so far this year. The industrial real estate developer is currently shelling out a dividend of $2.89 per share, with a dividend yield of 67%. This compares to the REIT and Equity Trust - Other industry's yield of 7.12% and the S&P 500's yield of 0.48%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.24 is up 11.2% from last year. Over the last 5 years, Prologis has increased its dividend 9.10 times on a year-over-year basis for an average annual increase of 5%. 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. Right now, Prologis's payout ratio is 2.91%, which means it paid out 2.91% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PLD expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $1.92 per share, which represents a year-over-year growth rate of 3.20%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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 PLD is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).