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 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.
Essex Property Trust in Focus
Headquartered in San Mateo, Essex Property Trust (ESS - Free Report) is a Finance stock that has seen a price change of 34.1% so far this year. The real estate investment trust is currently shelling out a dividend of $1.95 per share, with a dividend yield of 2.37%. This compares to the REIT and Equity Trust - Residential industry's yield of 3.05% and the S&P 500's yield of 1.88%.
Taking a look at the company's dividend growth, its current annualized dividend of $7.80 is up 4.8% from last year. In the past five-year period, 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. Right now, Essex Property Trust's payout ratio is 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, ESS expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $13.32 per share, which represents a year-over-year 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. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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, ESS presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).