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.
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.
DiamondRock Hospitality in Focus
DiamondRock Hospitality (DRH - Free Report) is headquartered in Bethesda, and is in the Finance sector. The stock has seen a price change of 19.27% since the start of the year. The hotel and resort real estate investment trust is currently shelling out a dividend of $0.26 per share, with a dividend yield of 4.62%. This compares to the REIT and Equity Trust - Other industry's yield of 4.28% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $0.50 is up 33.3% from last year. In the past five-year period, 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. Right now, DiamondRock Hospitality's payout ratio is 49%, which means it paid out 49% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for DRH for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.03 per share, which represents a year-over-year 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. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).