AES Corp To Return More To Shareholders, Ups Dividend By 8.3%

The AES Corporation (NYSE:AES) announced that its board of directors has approved an 8.3% hike in the quarterly common stock dividend, reaching the annualized payout to 52 cents per share. The annual yield on the dividend is 4.8%, higher than the previous level of 4.2%.

The raised quarterly dividend of 13 cents per share compared to the prior 12 cents will be effective from the first quarter of 2018. The amount will be paid on Feb 15, 2018, to shareholders of record as of Feb 1. The ex-dividend date is Jan 30, 2018.

This marks the fifth straight annual hike since the first dividend payout in 2012. AES Corp’s strong cash flow outlook and solid balance sheet allow it to regularly raise dividend at above-average rates.

Rationale Behind the Hike

AES Corp strives to maintain a flexible liquidity position. Between 2017 and 2020, the company expects to generate $3.7 billion in discretionary cash, reflecting a 42.3% rise from the 2016-2018 level. As of Sep 30, 2017, the company had cash and cash equivalents of $1,398 million, up from $1,305 million as of Dec 31, 2016. Consolidated free cash flow totaled $601 million in the third quarter.

Apart from investing in expansion projects, a stable financial position allows the company to repay debt and refinance, carry out share repurchase programs, and make regular dividend payments. In the first nine months of 2017, the company returned $238 million to shareholders in the form of dividend, compared to the year-ago period’s $218 million.

Expectations

AES Corp plans to expand its asset sales target and also expects to realize $2 billion in proceeds in the 2018-2020 period. The company is on track to achieve $400 million from annual cost savings and enhanced revenue initiatives by 2020-end and is simultaneously reviewing its cost structure and other potential opportunities. These initiatives will allow the company to maintain business mix simplification and return more to shareholders.

In addition, AES Corp expects 8% to 10% average annual growth in Parent Free Cash Flow through 2020 from the mid-point of the 2016 expectation of $525-$625 million. Subject to board approval and in line with the reaffirmed expectations, the company continues to expect shareholder annual dividend growth of 8% to 10%.

Price Movement

AES Corp's stock lost about 9.6% in a year's time, comparing unfavorably with the broader industry’s gain of 11.10%. The underperformance might have been led by unfavorable global macroeconomic factors, such as devaluation in foreign currencies, higher interest and inflation rates in Brazil and hurricanes in the Caribbean Islands.

Zacks Rank & Key Picks

AES Corp has a Zacks Rank #4 (Sell). A few better-ranked stocks in the same space are Atlantic Power Corporation (NYSE:AT) , DTE Energy Company (NYSE:DTE) and Consolidated Edison Inc (NYSE:ED) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Atlantic Power has an average positive earnings surprise of 29.21% for the past four quarters. The Zacks Consensus Estimate for current-year loss has narrowed by 5 cents in the past 30 days.

DTE Energy posted an average positive earnings surprise of 3.81% for the last four quarters. The Zacks Consensus Estimate for the current-year earnings has improved by 12 cents in the past 60 days.

Consolidated Edison posted an average positive earnings surprise of 0.06% for the past four quarters. The Zacks Consensus Estimate for the current-quarter earnings has improved by 3 cents over the last 60 days.

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