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.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Boston Properties in Focus
Headquartered in Boston, Boston Properties (BXP - Free Report) is a Finance stock that has seen a price change of 20.12% so far this year. Currently paying a dividend of $0.95 per share, the company has a dividend yield of 2.81%. In comparison, the REIT and Equity Trust - Other industry's yield is 4.21%, while the S&P 500's yield is 1.95%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.80 is up 8.6% from last year. Boston Properties has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 8.95%. 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. Boston Properties's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, BXP expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $6.98 per share, representing a year-over-year earnings growth rate of 10.79%.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, BXP 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).