Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Ameren in Focus
Based in St Louis, Ameren (AEE - Free Report) is in the Utilities sector, and so far this year, shares have seen a price change of 10.36%. Currently paying a dividend of $0.46 per share, the company has a dividend yield of 2.81%. In comparison, the Utility - Electric Power industry's yield is 3.3%, while the S&P 500's yield is 1.82%.
Looking at dividend growth, the company's current annualized dividend of $1.83 is up 2.9% from last year. Ameren has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 3.32%. 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. Ameren's current payout ratio is 57%. This means it paid out 57% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AEE for this fiscal year. The Zacks Consensus Estimate for 2018 is $3.25 per share, with earnings expected to increase 14.84% from the year ago period.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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. 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 AEE is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).