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Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Ameren in Focus
Based in St Louis, Ameren (AEE) is in the Utilities sector, and so far this year, shares have seen a price change of 8.88%. The utility is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 2.59% compared to the Utility - Electric Power industry's yield of 3.16% and the S&P 500's yield of 1.35%.
Looking at dividend growth, the company's 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. Right now, Ameren's payout ratio is 58%, which means it paid out 58% 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.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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 must be conscious 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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