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This is Why AES (AES) is a Great Dividend Stock

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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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

AES in Focus

Headquartered in Arlington, AES (AES - Free Report) is a Utilities stock that has seen a price change of 21.06% so far this year. Currently paying a dividend of $0.15 per share, the company has a dividend yield of 2.12%. In comparison, the Utility - Electric Power industry's yield is 3.39%, while the S&P 500's yield is 1.38%.

In terms of dividend growth, the company's current annualized dividend of $0.60 is up 4.7% from last year. AES has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.53%. 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 40%. This means it paid out 40% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for AES for this fiscal year. The Zacks Consensus Estimate for 2021 is $1.57 per share, with earnings expected to increase 9.03% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AES 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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