Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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

Headquartered in Las Vegas, American Homes 4 Rent (AMH) is a Finance stock that has seen a price change of 4.14% so far this year. Currently paying a dividend of $0.26 per share, the company has a dividend yield of 2.78%. In comparison, the REIT and Equity Trust - Residential industry's yield is 3.28%, while the S&P 500's yield is 1.51%.

In terms of dividend growth, the company's current annualized dividend of $1.04 is up 18.2% from last year. Over the last 5 years, American Homes 4 Rent has increased its dividend 4 times on a year-over-year basis for an average annual increase of 50.97%. 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. Right now, American Homes 4 Rent's payout ratio is 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, AMH expects solid earnings growth. The Zacks Consensus Estimate for 2024 is $1.76 per share, with earnings expected to increase 6.02% 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. It's important to keep in mind that not all companies provide 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, AMH presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).

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