Markets

This is Why Alexandria Real Estate Equities (ARE) is a Great Dividend Stock

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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Alexandria Real Estate Equities in Focus

Headquartered in Pasadena, Alexandria Real Estate Equities (ARE) is a Finance stock that has seen a price change of -0.88% so far this year. The life science real estate company is paying out a dividend of $1.06 per share at the moment, with a dividend yield of 2.65% compared to the REIT and Equity Trust - Other industry's yield of 3.81% and the S&P 500's yield of 1.62%.

Looking at dividend growth, the company's current annualized dividend of $4.24 is up 6% from last year. In the past five-year period, Alexandria Real Estate Equities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.24%. 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. Alexandria Real Estate Equities's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, ARE expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $7.30 per share, representing a year-over-year earnings growth rate of 4.89%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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, ARE 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).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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