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.
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.
EastGroup Properties in Focus
Based in Ridgeland, EastGroup Properties (EGP - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 11.55%. The real estate investment trust is paying out a dividend of $0.64 per share at the moment, with a dividend yield of 2.6% compared to the REIT and Equity Trust - Other industry's yield of 4.22% and the S&P 500's yield of 1.8%.
Looking at dividend growth, the company's current annualized dividend of $2.56 is up 1.6% from last year. Over the last 5 years, EastGroup Properties has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.16%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. EastGroup Properties's current payout ratio is 57%, meaning it paid out 57% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for EGP for this fiscal year. The Zacks Consensus Estimate for 2018 is $4.62 per share, with earnings expected to increase 8.45% from the year ago period.
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.
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. 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 EGP is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).