Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
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 -26.64%. The real estate investment trust is paying out a dividend of $0.3 per share at the moment, with a dividend yield of 3.56% compared to the REIT and Equity Trust - Retail industry's yield of 5.22% and the S&P 500's yield of 2.31%.
Looking at dividend growth, the company's current annualized dividend of $1.20 is up 5.3% from last year. In the past five-year period, American Assets Trust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.63%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 55%, which means it paid out 55% 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 $2.40 per share, which represents a year-over-year growth rate of 9.09%.
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).