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Ameren (AEE) is a Top Dividend Stock Right Now: Should You Buy?

Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does Ameren (AEE) have what it takes? Let's find...

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This story originally appeared on Zacks

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

- Zacks

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

Based in St Louis, Ameren (AEE) is in the Utilities sector, and so far this year, shares have seen a price change of 6.56%. Currently paying a dividend of $0.55 per share, the company has a dividend yield of 2.64%. In comparison, the Utility - Electric Power industry's yield is 3.39%, while the S&P 500's yield is 1.38%.

Taking a look at the company's dividend growth, its current annualized dividend of $2.20 is up 10% from last year. In the past five-year period, Ameren has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.91%. 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. Ameren's current payout ratio is 60%, meaning it paid out 60% of its trailing 12-month EPS as dividend.

AEE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $3.77 per share, with earnings expected to increase 7.71% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, AEE 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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