All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
AES in Focus
Headquartered in Arlington, AES (AES) is a Utilities stock that has seen a price change of 22.75% so far this year. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 3.08%. In comparison, the Utility - Electric Power industry's yield is 2.97%, while the S&P 500's yield is 1.89%.
Looking at dividend growth, the company's current annualized dividend of $0.55 is up 5.8% from last year. Over the last 5 years, AES has increased its dividend 5 times on a year-over-year basis for an average annual increase of 19.62%. 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. AES's current payout ratio is 42%. This means it paid out 42% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, AES expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.34 per share, with earnings expected to increase 8.06% 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. It's important to keep in mind that not all companies provide 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AES presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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The AES Corporation (AES) : Free Stock Analysis Report
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