Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Federal Realty Investment Trust in Focus
Based in Rockville, Federal Realty Investment Trust (FRT) is in the Finance sector, and so far this year, shares have seen a price change of -5.65%. The real estate investment trust is paying out a dividend of $1.02 per share at the moment, with a dividend yield of 3.33% compared to the REIT and Equity Trust - Retail industry's yield of 5.46% and the S&P 500's yield of 2%.
Looking at dividend growth, the company's current annualized dividend of $4.08 is up 3% from last year. In the past five-year period, Federal Realty Investment Trust has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5.76%. 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, Federal Realty Investment Trust's payout ratio is 66%, which means it paid out 66% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for FRT for this fiscal year. The Zacks Consensus Estimate for 2018 is $6.19 per share, representing a year-over-year earnings growth rate of 4.74%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, FRT 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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