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AES (AES) Could Be a Great Choice

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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.

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 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 -6.08% so far this year. The power company is paying out a dividend of $0.17 per share at the moment, with a dividend yield of 3.82% compared to the Utility - Electric Power industry's yield of 3.35% and the S&P 500's yield of 1.55%.

In terms of dividend growth, the company's 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. AES's current payout ratio is 31%, meaning 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, which represents a year-over-year growth rate of 8.52%.

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. 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that AES is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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