Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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.
Summit Hotel Properties in Focus
Summit Hotel Properties (INN - Free Report) is headquartered in Austin, and is in the Finance sector. The stock has seen a price change of -16.68% since the start of the year. The real estate investment trust specializing in higher end hotels is currently shelling out a dividend of $0.18 per share, with a dividend yield of 5.67%. This compares to the REIT and Equity Trust - Other industry's yield of 4.46% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $0.72 is up 7% from last year. Summit Hotel Properties has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 12.96%. 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. Summit Hotel Properties's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for INN for this fiscal year. The Zacks Consensus Estimate for 2018 is $1.35 per share, with earnings expected to increase 0.75% 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. 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 INN is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).