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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Ameren in Focus
Headquartered in St Louis, Ameren (AEE) is a Utilities stock that has seen a price change of 7.73% so far this year. Currently paying a dividend of $0.46 per share, the company has a dividend yield of 2.88%. In comparison, the Utility - Electric Power industry's yield is 3.26%, while the S&P 500's yield is 1.78%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.83 is up 2.9% from last year. In the past five-year period, Ameren has increased its dividend 4 times on a year-over-year basis for an average annual increase of 3.23%. 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 60%. This means it paid out 60% 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 $3.21 per share, with earnings expected to increase 13.43% 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. However, not all companies offer 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that AEE is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.