Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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.
AES in Focus
Headquartered in Arlington, AES (AES) is a Utilities stock that has seen a price change of 4.53% so far this year. The power company is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 2.49% compared to the Utility - Electric Power industry's yield of 3.41% and the S&P 500's yield of 1.76%.
Looking at dividend growth, the company's current annualized dividend of $0.63 is up 4.7% from last year. AES has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 5.22%. 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. AES's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
AES is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $1.61 per share, with earnings expected to increase 5.92% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. 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 AES is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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The AES Corporation (AES) : Free Stock Analysis Report
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