Where does American Electric (AEP) rank after its 5% announced dividend increase?

aep

American Electric Power’s (AEP) dividend was increased by a healthy 5%, one of the higher increases within the utility sector this year. The quarterly dividend for the December payment will be $0.59 versus the prior year rate of $0.56 per share. The overall yield is 3.7%, in line with other utility companies but above that of the S&P 500.

Based upon its high yield, 3 year dividend growth rate of 5.3%, and excellent financial rating, American Electric is a solid selection within the utility sector. However, AEP does not qualify as a member of our Top 100 Dividend Stock List (see below).

The dividend will be paid at the new higher rate on December 9, 2016, to shareholders of record at close of business on November 10, 2016. American Electric Power Co., Inc. is currently priced at $63.53. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
11/10/2016 0.59
8/8/2016 0.56
5/6/2016 0.56
2/8/2016 0.56
11/6/2015 0.56
8/6/2015 0.53
5/6/2015 0.53
2/6/2015 0.53
11/6/2014 0.53
8/6/2014 0.5
5/7/2014 0.5
2/6/2014 0.5
11/6/2013 0.5
8/7/2013 0.49
5/8/2013 0.49
2/6/2013 0.47
11/7/2012 0.47
8/8/2012 0.47
5/8/2012 0.47
2/8/2012 0.47
11/8/2011 0.47
8/8/2011 0.46
5/6/2011 0.46
2/8/2011 0.46
11/8/2010 0.46
8/6/2010 0.42
5/6/2010 0.42
2/8/2010 0.41

Analysis of American Electric Power Co., Inc. is based upon our five key criteria for the Top 100 list, which include; 

Category Value Score
Dividend Yield 3.72% 78
Dividend Growth (3-6 year avg) 5.0%  308
Forward P/E 16.69  133
S&P Financial Rating BBB+  160
Beta 0.65  50
Total Score    729

Additional Information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr max Yield % 5 yr low Yield %
3.72% 5.2% 4.9% 31.85 1.99 0.82 2.15 5.01% 3.22%

Positives;

  • American Electric dividend yield is above that of the S&P 500 Index.
  • American Electric maintains a 3 year dividend growth rate of 5.2%.
  • American Electric has paid out a dividend consecutively for the past 45 years.
  • American Electric maintains a beta of 0.65, lower than the average company.
  • American Electric maintains a solid investment grade rating.

Negatives

  • American Electric is trading at a forward P/E ratio above the market. Additionally, its also trading at historic highs in regard to price/sales (P/S) ratio.  From a relative valuation perspective, American Electric is overvalued.
  • American Electric current dividend yield (3.72%) is well below its historical max dividend yield of 5.01%.

Based upon its high P/S ratio and lower historical yield, American Electric does not qualify as one of our Top 100 Dividend Stocks.

American Electric Power Co., Inc. Dividend Yield Historical Chart (Click to enlarge) aep3

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

Further information on dividend investing and evaluating dividend growth candidates can be found at http://seekingalpha.com/author/timothy-mcintosh/articles

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