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.

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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

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 6.42% so far this year. Currently paying a dividend of $0.26 per share, the company has a dividend yield of 2.72%. In comparison, the REIT and Equity Trust - Residential industry's yield is 3.29%, while the S&P 500's yield is 1.53%.

Looking at dividend growth, the company's current annualized dividend of $1.04 is up 18.2% from last year. American Homes 4 Rent has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 50.97%. 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. 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, representing a year-over-year earnings growth rate of 6.02%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. That said, they can take comfort from the fact that AMH is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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

American Homes 4 Rent (AMH) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research