All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 13.77% since the start of the year. The hotel and resort real estate investment trust is currently shelling out a dividend of $0.13 per share, with a dividend yield of 4.84%. This compares to the REIT and Equity Trust - Other industry's yield of 4.33% and the S&P 500's yield of 1.89%.
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 1 times on a year-over-year basis for an average annual increase of 2.17%. 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. Right now, DiamondRock Hospitality's payout ratio is 47%, which means it paid out 47% 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, representing a year-over-year earnings growth rate of 0.98%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. That said, they can take comfort from the fact that DRH is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).