Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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.
American Assets Trust in Focus
Headquartered in San Diego, American Assets Trust (AAT) is a Finance stock that has seen a price change of -3.45% so far this year. The real estate investment trust is paying out a dividend of $0.27 per share at the moment, with a dividend yield of 2.93% compared to the REIT and Equity Trust - Retail industry's yield of 5.45% and the S&P 500's yield of 2.02%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.08 is up 2.9% 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 5.15%. 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 Assets Trust's current payout ratio is 52%. This means it paid out 52% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AAT expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $2.09 per share, representing a year-over-year earnings growth rate of 8.85%.
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.
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).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.