All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Mid-America Apartment Communities in Focus
Headquartered in Germantown, Mid-America Apartment Communities (MAA) is a Finance stock that has seen a price change of -8.69% so far this year. Currently paying a dividend of $1.4 per share, the company has a dividend yield of 3.91%. In comparison, the REIT and Equity Trust - Residential industry's yield is 3.9%, while the S&P 500's yield is 1.8%.
In terms of dividend growth, the company's current annualized dividend of $5.60 is up 19.8% from last year. Mid-America Apartment Communities has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.45%. 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. Mid-America Apartment Communities's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
MAA is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $8.70 per share, with earnings expected to increase 2.35% 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.
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. 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, MAA 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).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report