Electric and gas utility provider, Ameren Corporation AEE recently enticed investors by announcing an attractive hike of 4% in its fourth-quarter cash dividend. This hike increased its common stock dividend to 45.75 cents per share from the prior quarterly cash dividend of 44 cents.
The dividend hike has increased the company’s annualized equivalent dividend rate to $1.83 per share from the prior level of $1.76.
The common share dividend will be payable on Dec 29 to shareholders of record at the close of business on Dec 13.
Dividend Trends among Utilities
The utility sector is a fundamentally strong sector as demand for utility services is generally immune to fluctuations of the economic cycle especially as these companies provide basic services like electricity, gas and water, which can never go out of demand. This makes the stocks in this space as safe-heavens one and they enjoy a steady flow of revenues and cash flows.
As a result of steady flow of uninterrupted income in general, these stocks tend to generate consistent profits and reward shareholders with high dividends and Amerenis no exception. In this line, another utility operator, MGE Energy Inc. MGEE rewarded its shareholders a dividend hike of 5% in the month of August. (Read More: MGE Energy (MGEE) Rewards Shareholders with 5% Dividend Hike)
Ameren's primary focus for the foreseeable future revolves around core utility customers and creating long-term value for shareholders. It boasts a regular distribution record since 1998 and a dividend yield of 2.91%, much higher when compared with S&P 500’s dividend yield of 1.81%.
The company follows a systematic investment strategy, primarily for growth projects and infrastructure upgrade, which enables it to provide reliable services to customers, besides meeting increasing demand. This is evident from the better-than-expected results that Ameren delivered in the previous quarters. Evidently, the company outperformed the Zacks Consensus Estimate in last four quarters with a positive average earnings surprise of 2.83%.
In the long term, we believe that the company’s future dividend course will however be based on its earnings growth, cash flows, economic and other business conditions. Toward this, it is imperative to mention that the company expects to spend approximately $11.2 billion during the 2017-2021 time frame, in order to support overall system reliability, environmental compliance, and electric and natural gas utility infrastructure improvements. This indicates sufficient income growth that Ameren projects to generate, which in turn will enable it to make such ample investments.
To summarize, we believe the company’s earnings growth profile, combined with a solid dividend yield compared with other utility peers, will be an attractive opportunity for shareholders to invest in Ameren.
Ameren has outperformed the industry in the last 12 months. The company’s shares gained 29.5%, compared with the industry’s increase of 13.5%. Ameren continues to invest systematically in its infrastructural upgrades and grid modernization, which in turn may have driven the outperformance.
Zacks Rank & Key Picks
Amerencurrently carries a Zacks Rank #4 (Sell).
Investors can consider better-ranked stocks in the Utility space like NRG Energy, Inc. NRG that sports a Zacks Rank #1 (Strong Buy) and Algonquin Power & Utilities Corp. AQN that carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NRG Energy delivered an average surprise of 457.1% in the trailing four quarters. Its 2017 current quarter estimates have risen by 2.5% to $1.25 per share in the last 90 days.
Algonquin Power delivered an average surprise of 34.2% in the trailing four quarters. Its 2017 estimates have risen by 8.2% to 53 cents per share in the last 90 days.
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Ameren Corporation (AEE) : Free Stock Analysis Report
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