All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 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.
DiamondRock Hospitality in Focus
Headquartered in Bethesda, DiamondRock Hospitality (DRH - Free Report) is a Finance stock that has seen a price change of 17.51% so far this year. The hotel and resort real estate investment trust is paying out a dividend of $0.13 per share at the moment, with a dividend yield of 4.69% compared to the REIT and Equity Trust - Other industry's yield of 4.31% and the S&P 500's yield of 1.97%.
Looking at dividend growth, the company's current annualized dividend of $0.50 is up 33.3% from last year. Over the last 5 years, DiamondRock Hospitality has increased its dividend 2 times on a year-over-year basis for an average annual increase of 3.89%. 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. DiamondRock Hospitality's current payout ratio is 50%, meaning it paid out 50% of its trailing 12-month EPS as dividend.
DRH is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.03 per share, representing a year-over-year earnings growth rate of 0.98%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, DRH is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).