Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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.
AvalonBay Communities in Focus
AvalonBay Communities (AVB) is headquartered in Arlington, and is in the Finance sector. The stock has seen a price change of -1.97% since the start of the year. The apartment building owner is paying out a dividend of $1.47 per share at the moment, with a dividend yield of 3.36% compared to the REIT and Equity Trust - Residential industry's yield of 3.52% and the S&P 500's yield of 2.02%.
In terms of dividend growth, the company's current annualized dividend of $5.88 is up 3.5% from last year. Over the last 5 years, AvalonBay Communities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.56%. 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, AvalonBay's payout ratio is 67%, which means it paid out 67% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AVB expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $8.99 per share, with earnings expected to increase 4.29% 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.
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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AVB 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.