Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
American Assets Trust in Focus
Based in San Diego, American Assets Trust (AAT - Free Report) is in the Finance sector, and so far this year, shares have seen a price change of 13.84%. The real estate investment trust is paying out a dividend of $0.28 per share at the moment, with a dividend yield of 2.45% compared to the REIT and Equity Trust - Retail industry's yield of 5.3% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.12 is up 2.8% from last year. Over the last 5 years, American Assets Trust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.19%. 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. American Assets Trust's current payout ratio is 54%, meaning it paid out 54% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AAT expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $2.20 per share, which represents a year-over-year growth rate of 5.26%.
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.
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 AAT is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).