All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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 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 9.41% so far this year. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 3.45%. In comparison, the Utility - Electric Power industry's yield is 2.84%, while the S&P 500's yield is 1.93%.
Looking at dividend growth, the company's 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 12.35%. 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 44%. This means it paid out 44% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for AES for this fiscal year. The Zacks Consensus Estimate for 2019 is $1.34 per share, representing a year-over-year earnings growth rate of 8.06%.
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. With that in mind, AES presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).