Last update on 2024-06-27

AES (AES) - Dividend Analysis (Final Score: 4/8)

Comprehensive AES dividend analysis revealing performance, stability based on 8-criteria. Current score: 4/8. Insider details, charts, and deep insights.

Short Analysis - Dividend Score: 4

We're running AES (AES) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

AES's dividend policy shows mixed results based on an 8-criteria analysis. The company's dividend yield is slightly below the industry average at 3.4494%, showing room for improvement. Although there's been a steady increase since 2012, volatility in earnings and free cash flow raises sustainability concerns. AES's average payout ratio is below 65%, which is good, but its dividends are sometimes not well-covered by earnings and cash flow, indicating risks. While dividends have been stable since 2013, they briefly decreased in 2018. With a history of dividends dating back only to 2012, AES does not meet the 25-year continuity criterion. Moreover, the stock repurchase activity is inconsistent, showing only partial commitment.

Insights for Value Investors Seeking Stable Income

Investors should approach AES with caution. While there's a trend of increasing dividends, the volatility in earnings and cash flow are red flags. The slightly below-average dividend yield and inconsistent stock repurchase strategy also suggest that AES may not be the most reliable dividend stock. Therefore, AES may not be ideal for conservative, income-oriented investors looking for stable and long-term dividend income. However, those open to taking some risk for potential gains might still find it worth considering.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an important measure because it gives investors an idea of the income they can expect from holding the stock aside from capital appreciation.

AES's current dividend yield of 3.4494% is slightly lower than the industry average of 3.75%. Over the last two decades, AES's dividend yield peaked at 5.5402% in 2017 and was above 4% in 2015. However, for many years prior to that, the company did not pay any dividends, as seen from 2003 to 2010. The recent rise in the dividend yield can be regarded as a positive trend in attracting investors looking for income-generating assets. Nonetheless, being below the industry average may be viewed as a drawback when compared to its peers, suggesting that while AES has shown a better commitment to returning value to shareholders, there is still room for improvement. Moreover, its stock price history reveals a significant volatility, going as low as $8.24 in 2008 to as high as $28.76 in 2022, which likely influenced dividend policies. In terms of dividend per share, AES has shown a consistent increase from the first payout of $0.04 in 2012 to $0.664 in 2023.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for AES (AES) and why it is important to consider

The Dividend Growth Rate is higher than 5% in the last 20 years? Interpret the results. Discussion should be predicated based on historic data of dividendPerShareRatio.

Average annual Payout Ratio lower than 65% in the last 20 years?

average payout ratio lower than 65% in the last 20 years

The Average Payout Ratio (APR) of AES over the past 20 years is 53.81%, which falls below the threshold of 65%. This trend suggests that AES has been relatively conservative in distributing profits to shareholders over the long term, indicating a potential for sustainable dividend payments and retained earnings for reinvestment. Despite some extreme values, such as 826.59% in 2020 and negative ratios in other years, the average indicates overall prudence. This trend is generally good for investors seeking stable dividends, but the outliers might raise concerns about the consistency and reliability of future payouts.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings refer to a company's capacity to adequately pay dividends from its net income. Companies that consistently generate sufficient earnings to cover their dividends are often seen as financially healthy.

Examining AES's data from 2003 to 2023, we note that the Earnings per Share (EPS) have been inconsistent, even turning negative in certain years. When we look at the Dividends per Share over the same period, AES began issuing dividends in 2012. The coverage ratio (EPS/Dividend per Share) reveals fluctuating trends. For instance, in 2013, the ratio was 1.04, indicating strong coverage, but by 2015 it was 0.19, showing weaker coverage. More alarming trends are seen in 2021 and 2022 where the EPS turned negative, making the dividend coverage ratio also negative. However, 2019 showed strong coverage at 1.20. In general, the trends show that while there are years of strong coverage, the inconsistencies and negative earnings suggest potential risks. Investors should be cautious as this indicates that dividends may not be consistently sustainable from earnings.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow means that the free cash flow is sufficient to meet dividend payments, ensuring sustainability.

Analyzing the data from 2003 to 2023 reveals a highly volatile coverage ratio for AES's dividends via free cash flow. Initially, AES did not pay dividends until 2009, when it had a negative cash flow but proceeded with significant payouts from 2009 onwards. The ratio shows peculiar patterns: negative coverage in 2007 and 2008, implying payouts were sustained by capital or debt. Positive double-digit values in 2012 and 2016 suggest surplus cash. Worrisomely, recent years (2021-2023) exhibit highly negative coverage, specifically in 2022, with a coverage ratio of -0.22 and a substantial free cash flow deficit of -$4690M against a payout of $444M. This irregular trend over two decades flags concerns about dividend sustainability, particularly given the inconsistency and increasingly negative outlook latterly. AES’s free cash flow structurally lagging behind dividend payments might foreshadow either reduced future dividends or potentially a concerning operational management pivot towards unsustainable borrowing or liquidating assets to maintain investor returns.

Stable Dividends Since the Company Began Paying Dividends?

Explain Stable Dividends Over the Past 20 Years. Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Let's analyze the dividend payments of AES over the past 20 years. According to the data, AES (AES) initiated its dividend payments in 2013 with a dividend per share of $0.04. Since then, the dividends have seen steady growth, reaching $0.664 per share in 2023. However, there was a notable decrease from $0.60 in 2017 to $0.52 in 2018, representing a drop of around 13.3%. This indicates some level of volatility in dividends. Despite this drop, the dividends started stabilizing and improved in subsequent years. While there were minor dips over this period, overall, AES has demonstrated a trend of increasing dividends. Although this trend is generally positive for income-seeking investors, the observed reduction in 2017 points to some risk. Long-term income investors should be mindful of this past fluctuation when considering AES for a stable dividend income.

Dividends Paid for Over 25 Years?

Explain the criterion for AES (AES) and why it is important to consider

Examining the data, AES has been paying dividends consistently since 2012. For a dividend to qualify as having been paid over 25 years, there should be a continuous streak of dividend payments over that period. AES, however, began its dividend payments in 2012 and hence does not meet this criterion. Consistent and long-term dividend payments are essential as they provide evidence of the company's ability to generate stable profits and return value to shareholders over an extended period. A 25-year track record of dividend payments is usually considered a benchmark for financial robustness, reliability, and attractiveness to conservative, income-oriented investors.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over the past 20 years examine a company's commitment to returning capital to shareholders by buying back its own shares.

Over the past 20 years, AES (AES) has seen mixed results in terms of stock repurchases. The data indicates reliable repurchases during the years 2009, 2012, 2013, 2014, 2015, 2016, and 2019. In several years, the number of shares outstanding decreased, reflecting buyback activities. However, the overall trend is not consistent, as the number of shares has also increased in some periods (e.g., 2010 when shares rose from 670 million to 769 million). The average repurchase rate of 0.6179 suggests modest repurchase activity. Therefore, while AES has demonstrated efforts to repurchase stock at specific times, the lack of consistent buyback strategy over all 20 years indicates only a partial commitment.