Is AES Corporation Stock a Buy?
Utilities are often viewed as the type of stock that a conservative investor might own. Obviously, though, not all utilities are created equal, so even conservative types need to dig more deeply before picking one. AES Corporation (NYSE: AES) is most certainly not your typical boring utility -- but dividend investors willing to take on just a little more risk might actually find it, and its 4.6% yield, quite appealing. Here's what you need to know.
The type of utility that conservative dividend investors gravitate to owns regulated assets. In this framework, a utility is granted a monopoly in a service area in exchange for government regulation of the rates it can charge. That generally puts a cap on the growth that utilities can achieve, but also a sort of floor under the businesses, since they have locked in customers. Moreover, the regulated aspect means that spending plans, which are key to a utility's earnings and dividend growth, generally operate outside of the ups and downs on Wall Street. Deals with regulators are the bigger determinant of spending and growth. Only around 15% of AES's business is tied to utilities that might fall into this category.
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