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 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.
Kilroy Realty in Focus
Headquartered in Los Angeles, Kilroy Realty (KRC - Free Report) is a Finance stock that has seen a price change of 1.36% so far this year. The real estate investment trust is paying out a dividend of $0.49 per share at the moment, with a dividend yield of 2.28% compared to the REIT and Equity Trust - Other industry's yield of 4.06% and the S&P 500's yield of 1.75%.
Looking at dividend growth, the company's current annualized dividend of $1.94 is up 1.6% from last year. Over the last 5 years, Kilroy Realty has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.47%. 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. Kilroy Realty's current payout ratio is 53%, meaning it paid out 53% of its trailing 12-month EPS as dividend.
KRC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $4.13 per share, which represents a year-over-year growth rate of 5.63%.
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. Income investors must be conscious 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 KRC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).