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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Ameren in Focus
Headquartered in St Louis, Ameren (AEE) is a Utilities stock that has seen a price change of 4.94% so far this year. The utility is currently shelling out a dividend of $0.55 per share, with a dividend yield of 2.69%. This compares to the Utility - Electric Power industry's yield of 3.26% and the S&P 500's yield of 1.33%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.20 is up 10% from last year. Over the last 5 years, Ameren has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.75%. 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. Ameren's current payout ratio is 58%. This means it paid out 58% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AEE expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $3.79 per share, representing a year-over-year earnings growth rate of 8.29%.
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.
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, AEE 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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Ameren Corporation (AEE) : Free Stock Analysis Report
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