All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
American Assets Trust in Focus
Based in San Diego, American Assets Trust (AAT) is in the Finance sector, and so far this year, shares have seen a price change of 0.35%. The real estate investment trust is paying out a dividend of $0.3 per share at the moment, with a dividend yield of 2.61% compared to the REIT and Equity Trust - Retail industry's yield of 4.77% and the S&P 500's yield of 1.78%.
In terms of dividend growth, the company's current annualized dividend of $1.20 is up 5.3% from last year. Over the last 5 years, American Assets Trust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.63%. 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, American Assets Trust's payout ratio is 53%, which means it paid out 53% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AAT for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.41 per share, representing a year-over-year earnings growth rate of 9.55%.
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.
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, AAT 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).