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Extra Space Storage (EXR) is a Top Dividend Stock Right Now: Should You Buy?

Zacks Equity Research
Cohen & Steers (CNS) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Extra Space Storage in Focus

Headquartered in Salt Lake City, Extra Space Storage (EXR) is a Finance stock that has seen a price change of 3.6% so far this year. The self-storage facility real estate investment trust is currently shelling out a dividend of $0.86 per share, with a dividend yield of 3.92%. This compares to the REIT and Equity Trust - Other industry's yield of 4.54% and the S&P 500's yield of 2%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.44 is up 10.3% from last year. Extra Space Storage has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 18.46%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Extra Space Storage's current payout ratio is 77%, meaning it paid out 77% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, EXR expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $4.63 per share, representing a year-over-year earnings growth rate of 5.71%.

Bottom Line

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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, EXR 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).

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