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.
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 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 13.28% so far this year. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 3.33%. In comparison, the Utility - Electric Power industry's yield is 2.9%, while the S&P 500's yield is 1.96%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.55 is up 5.8% 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 19.62%. Future dividend growth will depend on earnings growth as well as 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 44%, meaning it paid out 44% of its trailing 12-month EPS as dividend.
AES is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2019 is $1.34 per share, with earnings expected to increase 8.06% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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).