Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor’s dream. However, when you’re an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
Alexandria Real Estate Equities in Focus
Headquartered in Pasadena, Alexandria Real Estate Equities (ARE) is a Finance stock that has seen a price change of -0.66% so far this year. Currently paying a dividend of $1.09 per share, the company has a dividend yield of 2.46%. In comparison, the REIT and Equity Trust – Other industry’s yield is 3.07%, while the S&P 500’s yield is 1.29%.
Looking at dividend growth, the company’s current annualized dividend of $4.36 is up 2.8% from last year. Over the last 5 years, Alexandria Real Estate Equities has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.17%. 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. Alexandria Real Estate Equities’s current payout ratio is 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for ARE for this fiscal year. The Zacks Consensus Estimate for 2021 is $7.73 per share, with earnings expected to increase 5.89% from the year ago period.
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.
Big, established firms that have more secure profits are often seen as the best dividend options, but it’s fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, ARE 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).