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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Douglas Emmett in Focus
Headquartered in Santa Monica, Douglas Emmett (DEI) is a Finance stock that has seen a price change of -0.02% so far this year. Currently paying a dividend of $0.28 per share, the company has a dividend yield of 2.55%. In comparison, the REIT and Equity Trust - Other industry's yield is 4.03%, while the S&P 500's yield is 1.78%.
In terms of dividend growth, the company's current annualized dividend of $1.12 is up 5.7% from last year. In the past five-year period, Douglas Emmett has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.89%. 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. Douglas Emmett's current payout ratio is 50%, meaning it paid out 50% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for DEI for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.26 per share, which represents a year-over-year growth rate of 7.62%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. 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, DEI 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).