AES Doubles Dividend, Sells Stake in Subsidiary

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Electric power generator AES Corp. (NYSE: AES) doubled its quarterly dividend on Monday morning from $0.05 to $0.10 per share. The company owns and operates nearly 36,000 megawatts of power generation in the United States and 19 other countries and nine distribution companies around the world.

In its dividend announcement the company’s CFO said:

In order to maximize shareholder return, we are allocating significantly more of our cash towards our dividend. This dividend increase demonstrates management’s confidence in the strength of our cash flow, which supports both a meaningful and growing dividend, and our business growth initiatives.

Until this announcement AES’s dividend yield was just 1.5%, less than half the yield paid by much larger Duke Energy Corp. (NYSE: DUK) and just more than a third of the yield paid by CenterPoint Energy Inc. (NYSE: CNP), which has a virtually identical market cap.

At the same time as the dividend announcement, AES also announced the sale of a 15% stake in AES US Investments, a subsidiary of AES’s wholly owned IPALCO Enterprises, for $244 million. The buyer is Canadian institutional investor La Caisse de dépôt et placement du Québec (CDPQ). The Canadian firm will also invest $349 million in IPALCO through 2016 in exchange for a 17.65% equity stake.

Once these transactions are completed, CDPQ direct and indirect interests in IPALCO will total 30%. AES will own 85% of AES US Investments, and AES US Investments will own 82.35% of IPALCO. No change in management or operational control will occur as a result of the transactions.

AES said it expects the transactions to be “modestly accretive” to adjusted earnings per share based on a reduced requirement for direct company funding of existing growth and environmental projects. AES said it will invest CDPQ’s initial cash investment “in line with its stated capital allocation framework.” The transactions are expected to close in the first half of 2015.

Shares of AES were up more than 2% in Monday’s premarket session, at $13.64 in a 52-week range of $12.38 to $15.65.

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