Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
American Homes 4 Rent in Focus
American Homes 4 Rent (AMH) is headquartered in Las Vegas, and is in the Finance sector. The stock has seen a price change of 21% since the start of the year. The real estate company is paying out a dividend of $0.22 per share at the moment, with a dividend yield of 2.41% compared to the REIT and Equity Trust - Residential industry's yield of 3.62% and the S&P 500's yield of 1.61%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.88 is up 22.2% from last year. In the past five-year period, American Homes 4 Rent has increased its dividend 3 times on a year-over-year basis for an average annual increase of 46.04%. 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. American Homes 4 Rent's current payout ratio is 56%, meaning it paid out 56% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AMH for this fiscal year. The Zacks Consensus Estimate for 2023 is $1.62 per share, with earnings expected to increase 5.19% from the year ago period.
Bottom Line
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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that AMH is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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