All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 tha t dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Hospitality Properites in Focus
Based in Newton, Hospitality Properites (HPT) is in the Finance sector, and so far this year, shares have seen a price change of 9.25%. Currently paying a dividend of $0.53 per share, the company has a dividend yield of 8.13%. In comparison, the REIT and Equity Trust - Other industry's yield is 4.27%, while the S&P 500's yield is 1.96%.
In terms of dividend growth, the company's current annualized dividend of $2.12 is up 0.5% from last year. In the past five-year period, Hospitality Properites has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.01%. 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, Hospitality Properites's payout ratio is 59%, which means it paid out 59% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for HPT for this fiscal year. The Zacks Consensus Estimate for 2019 is $3.71 per share, which represents a year-over-year growth rate of 0.54%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, HPT 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.