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AES Has Paid Handsome Dividends, But Can It Continue?

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AES’s dividend yield

AES Corporation’s (AES) management forecasts that its cash flow will grow significantly in 2016—enough to support its projected annual dividend increase of 10%. AES’s 10% increase in dividends this year is among one of the highest in the industry. It paid $0.40 dividend per share in 2015. This was a 100% increase in dividends as compared to 2014. Its three-year average dividend growth is above 50%.

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Dividend yield

Currently, AES’s dividend yield is around 3.8%, which is in line with utilities. By comparison, industry giant Duke Energy’s (DUK) yield is above 4%, while PPL Corporation’s (PPL) dividend yield is ~4.2%. Remember, regulated utilities’ earnings are relatively less volatile and generally pay stable dividends. AES Corporation has significant exposure to unregulated operations. But with currency risks, we tend to see more volatility in earnings, which, in turn, leads to more uncertain dividends.

In any case, AES’s management estimate of an 18% decline in 2016 earnings is an unpleasant sign for dividend growth. Investors should also note that AES’s earnings in 1Q16 were far below management’s expectations, so it will be interesting to see how the company maintains its dividend growth in the next few quarters.

ETF exposure

The PowerShares S&P 500 High Dividend Low Volatility ETF (SPHD) is a fund that tracks 50 stocks filtered from S&P 500’s 75 highest dividend yielding stocks. AES makes up more than 2% of SPHD’s total portfolio. Utilities make up nearly 19% of SPHD, and so SPHD represents a strong investment alternative for conservative investors interested in fetching dividend income with relatively lower risk.

Continue to the next part for a look at forward dividend yield.

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