Back to top

Image: Bigstock

AES (AES) Could Be a Great Choice

Read MoreHide Full Article

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.

Cash flow can come from bond interest, interest from other types of investments, and of course, 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 - Free Report) is a Utilities stock that has seen a price change of -14.6% so far this year. Currently paying a dividend of $0.17 per share, the company has a dividend yield of 4.2%. In comparison, the Utility - Electric Power industry's yield is 3.28%, while the S&P 500's yield is 1.58%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.69 is up 3.9% from last year. In the past five-year period, AES has increased its dividend 5 times on a year-over-year basis for an average annual increase of 5%. 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, AES's payout ratio is 31%, which means it paid out 31% of its trailing 12-month EPS as dividend.

AES is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2024 is $1.91 per share, representing a year-over-year earnings growth rate of 8.52%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that AES is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


The AES Corporation (AES) - free report >>

Published in