Stocks ticked higher in early trading, with the major indices on track for a winning week. As of Thursday’s close, the Dow was up 1.63% for the week. Meanwhile, the S&P 500 and the Nasdaq Composite were up 1.5% and 1% for the same period. All S&P 500 sectors were positive for the week, with energy leading gains.
Today we’ll take a look at a diversified energy company with a history of performing well during economic slowdowns. The stock comes equipped with a 79% Buy rating from the pros that cover it, plus a sizable dividend payout.
Headquartered in Arlington, VA, the AES Corporation (AES) is one of the world’s leading power companies, generating and distributing power in 15 countries. The company’s diverse portfolio of thermal and renewable generation facilities and distribution businesses spans the Americas, Europe, the Middle East, and Asia. The stock has a history of outperforming the market following rate hikes.
The Fed’s most recent rate hike cycle began in 2015, during a time when inflation had fallen below the central bank’s 2% target, and interest rates were increased from 0.25% to 0.5%. In the six months following the cycle, the S&P 500 saw a series of ups and downs but finished the period with a modest 0.3% gain. AES, however, managed to stack on almost 19% during the same period.
Prior to that, Federal Reserve Chairman Ben Bernanke and his colleagues initiated an unprecedented two-year campaign in June 2004 to keep a lid on inflation following the recession of the early 2000s with a 0.25% hike to 1.25%. Six months after the initial rate hike, the S&P 500 had gained 6.2%, while AES stacked on an impressive 37%.
Will history repeat this time around? There’s no telling, but the pros on Wall Street seem to see that potential. The stock garners a 79% Buy rating among the analysts offering recommendations. A median 12-month consensus price target of $29.00 represents a 19% upside from the last price.
Most recently, Goldman Sachs analyst Insoo Kin initiated coverage of the stock with a Buy rating and a $30 price target citing the company’s potential to take advantage of the material clean energy investment pipeline. The analyst predicts an approximately 8% EPS CAGR through 2025 that she sees as underappreciated at current valuations.
A quick review of their dividend history should provide inspiration if you need another reason to consider AES. The company has steadily increased its dividend over the past ten years while maintaining a sustainable payout ratio of around 70%. AES raised its dividend 5% in February to $0.158 per share or 2.55%.
Should you invest in AES right now?
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