Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 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 -1.35% so far this year. Currently paying a dividend of $0.85 per share, the company has a dividend yield of 4.36%. In comparison, the REIT and Equity Trust - Other industry's yield is 4.29%, while the S&P 500's yield is 1.92%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.40 is up 3.4% from last year. In the past five-year period, SL Green has increased its dividend 5 times on a year-over-year basis for an average annual increase of 9.78%. 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, SL Green's payout ratio is 50%, which means it paid out 50% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for SLG for this fiscal year. The Zacks Consensus Estimate for 2019 is $6.92 per share, which represents a year-over-year growth rate of 4.53%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).