Why NexPoint Residential Trust Inc. (NXRT) is a Great Dividend Stock Right Now

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

NexPoint Residential Trust Inc. In Focus

Based in Dallas, NexPoint Residential Trust Inc. (NXRT) is in the Finance sector, and so far this year, shares have seen a price change of -44.72%. The real estate investment trust is currently shelling out a dividend of $0.38 per share, with a dividend yield of 3.28%. This compares to the REIT and Equity Trust - Residential industry's yield of 3.35% and the S&P 500's yield of 1.73%.

Looking at dividend growth, the company's current annualized dividend of $1.52 is up 8.3% from last year. Over the last 5 years, NexPoint Residential Trust Inc. has increased its dividend 5 times on a year-over-year basis for an average annual increase of 10.67%. 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. NexPoint Residential Trust Inc.'s current payout ratio is 46%, meaning it paid out 46% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, NXRT expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $3.40 per share, which represents a year-over-year growth rate of 23.64%.

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, NXRT 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).

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