Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
SL Green in Focus
Headquartered in New York, SL Green (SLG - Free Report) is a Finance stock that has seen a price change of 2.88% so far this year. The commercial real estate investment trust is paying out a dividend of $0.85 per share at the moment, with a dividend yield of 4.18% compared to the REIT and Equity Trust - Other industry's yield of 4.33% and the S&P 500's yield of 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.40 is up 3.4% from last year. SL Green has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 9.78%. 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, SL Green's payout ratio is 51%, which means it paid out 51% of its trailing 12-month EPS as dividend.
SLG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $6.88 per share, representing a year-over-year earnings growth rate of 3.93%.
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.
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. With that in mind, SLG 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).