All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, 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 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
Headquartered in San Diego, American Assets Trust (AAT) is a Finance stock that has seen a price change of -45.53% so far this year. Currently paying a dividend of $0.3 per share, the company has a dividend yield of 4.8%. In comparison, the REIT and Equity Trust - Retail industry's yield is 8.46%, while the S&P 500's yield is 2.37%.
Looking at dividend growth, the company's current annualized dividend of $1.20 is up 5.3% from last year. American Assets Trust has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.63%. 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, American Assets Trust's payout ratio is 55%, which means it paid out 55% of its trailing 12-month EPS as dividend.
AAT is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $2.35 per share, with earnings expected to increase 6.82% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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. 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).