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.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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.
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 16.65% since the start of the year. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.39%. In comparison, the REIT and Equity Trust - Retail industry's yield is 5.64%, while the S&P 500's yield is 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%. 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. American Assets Trust's current payout ratio is 54%. This means 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, representing a year-over-year earnings growth rate of 6.70%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).