In This Article:
All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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.
American Homes 4 Rent in Focus
Based in Las Vegas, American Homes 4 Rent (AMH) is in the Finance sector, and so far this year, shares have seen a price change of -0.4%. The real estate company is paying out a dividend of $0.3 per share at the moment, with a dividend yield of 3.22% compared to the REIT and Equity Trust - Residential industry's yield of 3.96% and the S&P 500's yield of 1.69%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.20 is up 15.4% from last year. Over the last 5 years, American Homes 4 Rent has increased its dividend 5 times on a year-over-year basis for an average annual increase of 45.18%. 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 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AMH expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $1.82 per share, which represents a year-over-year growth rate of 2.82%.
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.
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, 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).