Ameren (AEE) Is A Top Dividend Stock Right Now: Should You Buy?

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.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a 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

Ameren (AEE) is headquartered in St Louis, and is in the Utilities sector. The stock has seen a price change of -20.09% since the start of the year. The utility is currently shelling out a dividend of $0.5 per share, with a dividend yield of 3.23%. This compares to the Utility - Electric Power industry's yield of 4.1% and the S&P 500's yield of 2.82%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.98 is up 3.1% 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 3.82%. 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 59%, meaning it paid out 59% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, AEE expects solid earnings growth. The Zacks Consensus Estimate for 2020 is $3.48 per share, which represents a year-over-year growth rate of 3.88%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).