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.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
American Assets Trust in Focus
American Assets Trust (AAT - Free Report) is headquartered in San Diego, and is in the Finance sector. The stock has seen a price change of 15.61% since the start of the year. The real estate investment trust is currently shelling out a dividend of $0.28 per share, with a dividend yield of 2.41%. This compares to the REIT and Equity Trust - Retail industry's yield of 5.29% and the S&P 500's yield of 1.96%.
Looking at dividend growth, the company's current annualized dividend of $1.12 is up 2.8% from last year. Over the last 5 years, American Assets Trust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.82%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. American Assets Trust's current payout ratio is 54%, meaning it paid out 54% of its trailing 12-month EPS as dividend.
AAT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $2.23 per share, with earnings expected to increase 6.70% from the year ago period.
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 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 AAT is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).