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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Realty Income Corp. In Focus
Headquartered in San Diego, Realty Income Corp. (O) is a Finance stock that has seen a price change of 2.6% so far this year. The real estate investment trust is paying out a dividend of $0.66 per share at the moment, with a dividend yield of 4.52% compared to the REIT and Equity Trust - Retail industry's yield of 5.58% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $2.65 is up 4.5% from last year. Over the last 5 years, Realty Income Corp. has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.70%. 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. Realty Income Corp.'s current payout ratio is 85%, meaning it paid out 85% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for O for this fiscal year. The Zacks Consensus Estimate for 2018 is $3.18 per share, with earnings expected to increase 3.92% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide 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, O presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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