American Homes 4 Rent (AMH) is a Top Dividend Stock Right Now: Should You Buy?

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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.

American Homes 4 Rent in Focus

Based in Calabasas, American Homes 4 Rent (AMH) is in the Finance sector, and so far this year, shares have seen a price change of -18.32%. The real estate company is currently shelling out a dividend of $0.18 per share, with a dividend yield of 2.02%. This compares to the REIT and Equity Trust - Residential industry's yield of 2.88% and the S&P 500's yield of 1.63%.

Looking at dividend growth, the company's current annualized dividend of $0.72 is up 80% from last year. Over the last 5 years, American Homes 4 Rent has increased its dividend 2 times on a year-over-year basis for an average annual increase of 26.97%. 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. American Homes 4 Rent's current payout ratio is 49%. This means it paid out 49% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, AMH expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $1.56 per share, with earnings expected to increase 14.71% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, AMH 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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