All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
SL Green in Focus
Headquartered in New York, SL Green (SLG - Free Report) is a Finance stock that has seen a price change of -0.73% so far this year. The commercial real estate investment trust is currently shelling out a dividend of $0.85 per share, with a dividend yield of 4.33%. This compares to the REIT and Equity Trust - Other industry's yield of 4.07% and the S&P 500's yield of 1.93%.
Taking a look at the company's dividend growth, its current annualized dividend of $3.40 is up 3.4% from last year. SL Green has increased its dividend 5 times on a year-over-year basis over the last 5 years 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. SL Green's current payout ratio is 50%. This 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, representing a year-over-year earnings growth rate of 4.53%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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).