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Why AES (AES) is a Top Dividend Stock for Your Portfolio

Zacks Equity Research

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 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

Based in Arlington, AES (AES) is in the Utilities sector, and so far this year, shares have seen a price change of -38.49%. The power company is paying out a dividend of $0.14 per share at the moment, with a dividend yield of 4.68% compared to the Utility - Electric Power industry's yield of 3.69% and the S&P 500's yield of 2.11%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.57 is up 4.4% 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 7.90%. 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 42%, meaning it paid out 42% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for AES for this fiscal year. The Zacks Consensus Estimate for 2020 is $1.39 per share, which represents a year-over-year growth rate of 2.21%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. 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).


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