But tucked away in the index are some lesser-known stocks offering compelling value, high yields and long-term potential. One such name is AES Corporation (NYSE: AES), a global energy company currently yielding 6.4%.

That’s far above the average yield for an S&P 500 stock — and it could be a sign of hidden opportunity.

A utility company in transition

AES is a $7.75bn diversified utility company operating across 14 countries. It generates and distributes electricity using a mix of sources, including natural gas, coal, hydro and, increasingly, renewables. Over the past decade, it’s been pivoting hard towards clean energy, targeting Net Zero carbon emissions from power generation by 2040.

What the numbers say

Despite a lacklustre share price performance in recent years, AES has continued to grow both revenue and cash flow. Its dividend has grown consistently for the past seven years and is comfortably covered by free cash flow. The company also has a long-term plan to increase its payout by 5-7% annually, aligning income with inflation.

Yet, the market doesn’t appear enthusiastic. With the share price now near a five-year low, its forward price-to-earnings (P/E) ratio’s fallen to 8.5 — well below the S&P 500 average. Some of that discount’s justified by the debt it’s racked up to fund its renewables transition.

However, the overall fundamentals still look good.

Risks to consider

It’s not all plain sailing. AES faces execution risk as it retires older fossil fuel plants and replaces them with renewable projects. Delays, cost overruns or regulatory pushback could slow progress. Plus, while its international footprint’s a source of growth, it also exposes the company to geopolitical instability and volatile exchange rates.

Unlike traditional utilities that rely heavily on regulated domestic markets, it earns a significant chunk of revenue overseas. That also brings some complexity — and currency risk — but also provides exposure to faster-growing markets.

And that’s not to mention a core risk that affects all utility companies: sensitivity to interest rates. Rising rates could make it less attractive compared to safer assets like bonds, which have weighed on the share price in the past. However, when rates peak, sentiment usually shifts back in favour of defensive, income-generating stocks.

My verdict

AES may not be the flashiest name in the S&P 500, but it offers something increasingly hard to find, namely a high, well-covered dividend from a company investing in the future of energy. Its low price and strong income profile make it worth considering for long-term British value investors seeking diversification beyond the usual FTSE fare.

There are risks, especially around debt and project delivery. But for those willing to take a contrarian view, AES might just be one of the better-kept secrets on the S&P 500 and worth considering.

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