Utilities are not in favor recently - to say the least. Higher interest rates have pushed many of them to price levels that are at 52-weeks lows.
In an attempt to benefit from this ‘blood in the streets’ I scooped up 25 shares of Dominion Energy in March.
This month another unloved and downtrodden Utility popped up on my radar.
On June 11 I bought 25 shares of American Electric Power Company, Inc. (AEP) for a total of $1,585.
In this post I go over the reasons for making this addition to my portfolio and what it means for my forward dividend income.
American Electric Power Company, Inc., an electric public utility holding company, engages in the generation, transmission, and distribution of electricity for sale to retail and wholesale customers in the United States.
The company generates electricity using coal and lignite, natural gas, nuclear, hydroelectric, solar, wind, and other energy sources.
It also supplies and markets electric power at wholesale to other electric utility companies, rural electric cooperatives, municipalities, and other market participants.
The company owns, leases, or controls approximately 3,675 railcars, 468 barges, 11 towboats, and a coal handling terminal with approximately 18 million tons of annual capacity.
American Electric Power Company, Inc. was founded in 1906 and is headquartered in Columbus, Ohio.
AEP’s current dividend yield is 3.90% – above the average 3.5% yield I strive for in building my portfolio.
The company is featured on David Fish’s list of Dividends Champions, Contenders and Challengers - with a modest 8 year streak of growing dividend pay-outs.
The 5 year dividend growth is also quite modest, 4.82% - with last year’s dividend growth coming in at 5.08%.
Current Trailing Dividend Payout Ratio however is fine, and sits at 69%.
AEP’s Earnings per Share (EPS) over the last five years shows an 8.34% increase. Projected EPS growth for the next 3-5 years is 5.79%.
The trailing 12 months Price/Earnings (P/E) is 17.66, which is significantly lower than it’s 5 year average of 25.13. It is also lower than the industry’s 5 year average of 21.57.
EVA Dimensions (an equity research firm) states in their June 13 report that AEP’s PRVit score is at the 51st percentile of all firms in its industry, which leads to a recommendation to Hold. AEP is fairly valued relative to other stocks in its industry.
Ford Equity Research projects that AEP will perform in line with the market over the next 6 to 12 months. This projection is based on analysis of three key factors that influence common stock performance: earnings strength, relative valuation, and recent price movement. The research firm predicts a 52-Week Price Range between $63.38 - $77.63.
Jefferson Research states that AEP is showing strong Earnings Quality, Cash Flow Quality and Operating Efficiency, and Valuation suggests a lower amount of price risk, but Balance Sheet Quality is weak. When combined, AEP deserves a BUY rating.
Jefferson adds that even though the Valuation rating improved the most during the quarter, this was offset by weakness in the Balance Sheet rating due to liquidity concerns. Combined, the changes were insufficient to lower the overall rating from a BUY.
Given AEP’s annual dividend of $2.48 per share this purchase increased my forward annual dividend income by $62.
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looks like a good buy,not heard of the name before
Thanks. It’s certainly not the only Utility out there where I believe there is value to be found, but AEP is appealing to me at these levels.
They are also investing in renewables (wind, solar) and batteries. Happy to hold them for the next few decades.
I’m only familiar with the more popular names. It seems like a good pick in the utility sector with a nice dividend growth rate.
Thanks - I like AEP right now, but there are definitely other value names out there in Utilities.
NEE was also on my list, but I’d like the price a little lower for me to start a position.
This is an awesome purchase TI. I like how you are taking a tour de Columbus, Ohio with the purchase of AEP and CAH haha I own AEP as well and may add to my position. I hadn’t realized the metrics are looking this good at the moment, so it may be as good as a time as ever to add to my position. Cheers and congrats!
Bert
Ohio seems to me to be the ‘heart of it all’ when it comes to dividend growth investing!
Thanks for commenting, and glad you found value in the post.
TI, I like AEP. Wanted to buy recently but missed the most recent dip. Still watching. Have added to D on a couple opportunities already this year. Would also like to add to WEC on any further weakness. Thanks for the post. Tom
Hi Tom - thanks for the comment. Still value to be found in the Utilities sector (imo). Would like to add more to D as well. Haven’t really research WEC, but thank you for putting it on my radar.
Cheers