Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. In the past 10 years AvalonBay Communities Inc (NYSE:AVB) has returned an average of 4.00% per year to investors in the form of dividend payouts. Should it have a place in your portfolio? Let’s take a look at AvalonBay Communities in more detail. View our latest analysis for AvalonBay Communities
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
Does AvalonBay Communities pass our checks?
REITs are a special-case dividend payer. This is because a high percentage of their earnings are required to be paid out as dividends. The company currently pays out 101.10% of its earnings as a dividend, according to its trailing twelve-month data, meaning that a portion of dividend payments are funded by retained earnings. Going forward, analysts expect AVB’s payout to increase to 150.50% of its earnings, which leads to a dividend yield of around 3.89%. However, EPS is forecasted to fall to $4.49 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. AVB has increased its DPS from $3.57 to $5.88 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock. Relative to peers, AvalonBay Communities has a yield of 3.70%, which is on the low-side for REITs stocks.
If AvalonBay Communities is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three key aspects you should further research:
- 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.