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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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 that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
EastGroup Properties in Focus
Headquartered in Ridgeland, EastGroup Properties (EGP) is a Finance stock that has seen a price change of 7.59% so far this year. The real estate investment trust is currently shelling out a dividend of $0.79 per share, with a dividend yield of 2.13%. This compares to the REIT and Equity Trust - Other industry's yield of 3.16% and the S&P 500's yield of 1.29%.
In terms of dividend growth, the company's current annualized dividend of $3.16 is up 2.6% from last year. In the past five-year period, EastGroup Properties has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.53%. 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. EastGroup Properties's current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, EGP expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $5.71 per share, which represents a year-over-year growth rate of 6.13%.
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.
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, EGP 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).