Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
UDR in Focus
Based in Highlands Ranch, UDR (UDR - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 3.89%. The real estate investment trust is paying out a dividend of $0.32 per share at the moment, with a dividend yield of 3.22% compared to the REIT and Equity Trust - Residential industry's yield of 3.44% and the S&P 500's yield of 1.79%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.29 is up 5.3% from last year. Over the last 5 years, UDR has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.46%. 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. Right now, UDR's payout ratio is 68%, which means it paid out 68% of its trailing 12-month EPS as dividend.
UDR is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $1.94 per share, which represents a year-over-year growth rate of 3.74%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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 UDR is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).