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.
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.
Life Storage in Focus
Based in Williamsville, Life Storage (LSI - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 7.29%. The self storage real estate investment trust is currently shelling out a dividend of $1 per share, with a dividend yield of 4.19%. This compares to the REIT and Equity Trust - Other industry's yield of 4.28% and the S&P 500's yield of 1.79%.
Taking a look at the company's dividend growth, its current annualized dividend of $4 is up 1.3% from last year. Life Storage has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 14.18%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Life Storage's current payout ratio is 74%, meaning it paid out 74% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for LSI for this fiscal year. The Zacks Consensus Estimate for 2018 is $5.47 per share, representing a year-over-year earnings growth rate of 3.01%.
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.
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. With that in mind, LSI presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).