AES (AES), a competitive utility, is trading at a dividend yield of 4.7%—compared to broader utilities’ average yield of 4.4%. AES is one of the smaller constituents of the S&P 500 Utilities Index. However, its dividend growth in the last few years has been exceptional—significantly higher than utility giants. While AES’s annualized dividends have risen at a compound annual growth rate of 35% over the last three years, broader utilities (XLU) have raised their dividends by an average of 4%–6%.
To learn about the dividend profiles of the top utilities in the sector, read Analyzing the Largest S&P 500 Utilities’ Dividend Profiles.
On January 12, 2018, AES stock was trading at an EV-to-EBITDA multiple of 8.7x. Its five-year historical EV-to-EBITDA multiple is just above 7x. Currently, broader utilities’ average valuation is close to 10.5x. AES seems to be trading at an attractive valuation compared to its peers. It appears to be trading at a premium to its historical valuation.
Next, we’ll discuss AES’s returns compared to its peers.