How Do AES’s Forward Yield and Dividend Growth Place It among Peers?



AES’s forward dividend yield

A company’s forward dividend yield is calculated by dividing its estimated one-year future dividend per share by its current market price per share. AES Corporation (AES) is currently trading at a forward dividend yield of 4%, and analysts expect the company’s dividends to grow by 10% in the next two years. This above-average dividend growth is indeed striking amid the slowdown across the sector.

To compare forward yield and expected dividend growth, we have included US utilities with international operations as AES’s peers.

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Dividend growth

AES has the highest expected dividend growth in the next two years among peers Sempra Energy (SRE), PPL Corporation (PPL), and Duke Energy (DUK). Californian utility Sempra Energy, which has significant operations in Latin America, also has a remarkable expected dividend growth rate of above 8%. Its business mix of electric and gas distribution and its midstream investments bode well for dividend growth.

SRE is trading at a forward yield of 2.8%. Remember, utilities with volatile earnings tend to have higher yields. AES’s earnings were volatile due to its heavy weight in unregulated operations. Investors generally expect higher yields to compensate for higher risks.

PPL Corporation (PPL) and Duke Energy (DUK), by comparison, are almost entirely regulated utilities and are trading at a forward dividend yield of ~4%. Duke’s expected dividend growth rate is below 4% while PPL’s is ~2%. We should note here that regulated utilities have relatively stable earnings and are expected to pay more stable dividends than unregulated ones.

Now it’s time to talk about valuations.


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