Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 10 years, AvalonBay Communities Inc (NYSE:AVB) has returned an average of 3.00% per year to shareholders in terms of dividend yield. Should it have a place in your portfolio? Let’s take a look at AvalonBay Communities in more detail. Check out our latest analysis for AvalonBay Communities
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does AvalonBay Communities fit our criteria?
REITs are a special-case dividend payer. This is because a high percentage of their earnings are required to be paid out as dividends. AvalonBay Communities has a trailing twelve-month payout ratio of 101.10%, meaning that a portion of dividend payments are funded by retained earnings. Going forward, analysts expect AVB’s payout to increase to 143.73% of its earnings, which leads to a dividend yield of 3.58%. However, EPS is forecasted to fall to $4.47 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of AVB it has increased its DPS from $3.57 to $5.88 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, AvalonBay Communities produces a yield of 3.41%, which is on the low-side for REITs stocks.
Whilst there are few things you may like about AvalonBay Communities from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for AVB’s future growth? Take a look at our free research report of analyst consensus for AVB’s outlook.
- Valuation: What is AVB worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AVB is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.