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.
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.
Mid-America Apartment Communities in Focus
Mid-America Apartment Communities (MAA - Free Report) is headquartered in Germantown, and is in the Finance sector. The stock has seen a price change of 4.01% since the start of the year. The real estate investment trust is currently shelling out a dividend of $1 per share, with a dividend yield of 2.92%. This compares to the REIT and Equity Trust - Residential industry's yield of 3.53% and the S&P 500's yield of 1.82%.
Looking at dividend growth, the company's current annualized dividend of $4 is up 4.2% from last year. Mid-America Apartment Communities has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.53%. 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. Right now, Mid-America Apartment Communities's payout ratio is 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.
MAA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $6.56 per share, with earnings expected to increase 0.15% from the year ago period.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MAA 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).