Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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.
Essex Property Trust in Focus
Essex Property Trust (ESS - Free Report) is headquartered in San Mateo, and is in the Finance sector. The stock has seen a price change of 25.31% since the start of the year. Currently paying a dividend of $1.95 per share, the company has a dividend yield of 2.54%. In comparison, the REIT and Equity Trust - Residential industry's yield is 3.09%, while the S&P 500's yield is 1.97%.
Looking at dividend growth, the company's current annualized dividend of $7.80 is up 4.8% from last year. Over the last 5 years, Essex Property Trust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.89%. 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. Essex Property Trust's current payout ratio is 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ESS for this fiscal year. The Zacks Consensus Estimate for 2019 is $13.32 per share, representing a year-over-year earnings growth rate of 5.97%.
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 must be conscious 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 ESS is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).