Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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.
Sun Communities in Focus
Headquartered in Southfield, Sun Communities (SUI) is a Finance stock that has seen a price change of 2.82% so far this year. The real estate investment trust is currently shelling out a dividend of $0.71 per share, with a dividend yield of 2.98%. This compares to the REIT and Equity Trust – Residential industry's yield of 3.7% and the S&P 500's yield of 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.84 is up 6% from last year. In the past five-year period, Sun Communities has increased its dividend 3 times on a year-over-year basis for an average annual increase of 1.75%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Sun Communities's current payout ratio is 67%, meaning it paid out 67% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, SUI expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $4.57 per share, which represents a year-over-year growth rate of 9.59%.
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.
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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that SUI is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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