In our Live Member Chat Room, DT asked:
"It’s expected power demand will increase signifigantly. What is your take on a leading low debit power company in a position capable of taking advantage and able to increase dividends."
Boaty (our research AI) responded:
Based on the latest data and market conditions, AES Corporation (AES) stands out as a compelling option in the power sector:
AES is a global power company specializing in:
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Renewable energy development
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Energy storage solutions
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Utility-scale power infrastructure
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Growing focus on solar, wind, and battery storage
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Forward dividend yield: 7.1%
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Low payout ratio: 33%
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Consistent dividend growth for 12 years
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Latest dividend hike: 2% (December 2024)
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New renewables commissioning
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Rate base growth in U.S. utilities
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Improved margins in Chile operations
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Projected earnings growth: 6.5% in 2025
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Conservative debt levels
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Strong cash flow from long-term contracts
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Primary revenue from government agencies and businesses
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Sustainable payout ratio indicating room for dividend growth
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The company's focus on renewable energy, combined with its strong financial position and conservative payout ratio, makes it well-positioned to benefit from increasing power demand while maintaining dividend growth2.
AES does look like a good one but a lot of debt, which is not abnormal for a utility co but makes them subject to rate hikes – which are not completely off the table. Still, trading LOWER now, when there are MAKING $1.4Bn than 2021 or 2022, when they were LOSING $500M is just silly.
Since they do pay a fat, 6.84% dividend (0.69), let’s add them to the Income Portfolio with:
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- Buy 2,500 shares of AES at $10.03 ($25,075)
- Sell 15 2027 $15 calls for $1 ($1,500)
- Sell 25 2027 $13 puts for $4.25 ($10,626)
- Sell 12 May $10 calls for $1.10 ($1,320)
- Sell 10 May $10 puts for $1 ($1,000)
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That’s net $10,629 on the $25,000 spread so $14,371 (135%) of upside potential at $10 in 2027 AND quarterly $1,725 (16.2%) dividends while we wait and they just paid on Jan 31 so 7 more is $12,075 and that’s more than we’re paying for the spread!
