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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. 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 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 12.63% so far this year. The utility is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 2.5% compared to the Utility - Electric Power industry's yield of 3.22% and the S&P 500's yield of 1.35%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.20 is up 10% from last year. Ameren has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.75%. Future dividend growth will depend on earnings growth as well as 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 60%. This means it paid out 60% of its trailing 12-month EPS as dividend.
AEE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $3.78 per share, with earnings expected to increase 8% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. 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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