Dead-Weight Dividend Stocks: Ameren Corp (AEE)
Why It’s Dead Weight: Historically low yield
When most investors think of dividend stocks, “Steady Eddie” utility stocks often come to mind first. And well they should. Cars and computers may be cyclical, but consumers always keep the lights on.
And of the top blue-chip dividend stocks within the utilities sector, Ameren Corp (NYSE:AEE) is the creme of the crop, with a 3.4% yield from a non-growth business. Its dividend coverage ratio (the amount of profits dished out as dividends) of 65% is slightly lower than the industry norm of 67%; and better still, the $12 billion outfit has been steadily increasing its payout since 2011. Investors are looking for more of the same increases going forward.
So what’s wrong with AEE as an income-oriented investment? The stock’s 65% gain over the course of the past four years — and the 23% gain just since the January 2016 low — has far exceeded dividend growth during that time, pushing the yield for the company to historically low levels.
Granted, sometimes you have to pay for (or make sacrifices for) a quality name like Ameren. This isn’t one of those times. There are other utility stocks out there that are just as strong that pay a higher yield. As the markets start to realize it, AEE is apt to be pressured lower.