This is Why AES (AES) is a Great Dividend Stock

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But 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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

AES in Focus

AES (AES) is headquartered in Arlington, and is in the Utilities sector. The stock has seen a price change of 14.11% since the start of the year. The power company is paying out a dividend of $0.14 per share at the moment, with a dividend yield of 3.31% compared to the Utility - Electric Power industry's yield of 2.96% and the S&P 500's yield of 1.99%.

Taking a look at the company's dividend growth, its current annualized dividend of $0.55 is up 5.8% 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 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%. This means it paid out 44% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, AES expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $1.34 per share, which represents a year-over-year growth rate of 8.06%.

Bottom Line

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 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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