All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Essex Property Trust in Focus
Essex Property Trust (ESS - Free Report) is headquartered in San Mateo, and is in the Finance sector. The stock has seen a price change of 1.72% since the start of the year. The real estate investment trust is paying out a dividend of $1.86 per share at the moment, with a dividend yield of 3.03% compared to the REIT and Equity Trust - Residential industry's yield of 3.44% and the S&P 500's yield of 1.79%.
Looking at dividend growth, the company's current annualized dividend of $7.44 is up 6.3% from last year. In the past five-year period, Essex Property Trust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.09%. 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. Essex Property Trust's current payout ratio is 61%. This means it paid out 61% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ESS for this fiscal year. The Zacks Consensus Estimate for 2018 is $12.58 per share, which represents a year-over-year growth rate of 5.63%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 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 ESS is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).