American Electric Power Co. (NYSE: AEP) has been a solid dividend-paying electric utility, and the company just did something that 24/7 Wall St. expects to be repeated for most of the next 10 years. The company raised its dividend. Investors should expect this to continue for years into the future.
24/7 Wall St. just named AEP, ahead of this announcement, as one of 10 companies which should be able to raise their dividends for the next decade. We first wanted to show AEP’s dividend history and the company’s quote, and then we go into detail over why AEP should be able to hike its dividend for a decade or so. This is also why AEP was refreshed on our list of 10 companies to own for the next decade as well
AEP declared a cash dividend of $0.56 per share, which is a dividend hike of 5.7% over its previous $0.53 per share payout. AEP said that it last increased its dividend in October 2014, from a prior rate of $0.49 per share. Its prior quarterly dividend payouts were $0.47 in 2013, $0.46 in 2011, $0.42 in 2010 and $0.41 also in 2010, but static back to 2007.
Nicholas Akins, AEP’s chairman, president and chief executive officer, said of the hike:
AEP remains committed to building upon its financial strength and providing solid returns for our shareholders, as we have done for more than 100 years. This dividend increase demonstrates our focus on consistently increasing shareholder value. I want to commend our employees for their ongoing diligence and commitment to improvement, which have enabled us to deliver strong financial results and reward our investors for 422 consecutive quarters.
ALSO READ: 9 Great Companies Will Raised Dividends for a Decade
Elsewhere, Merrill Lynch has a Buy rating on AEP and a $62.00 price objective. The firm sees the annualized dividend payout growing to $2.14 in 2015, $2.24 in 2016 and $2.36 in 2017, with a payout ratio of 59% to 60% in each year. That is based on long-term earnings per share growth per year of 4% to 6%.
AEP’s pre-hike dividend yield was close to 3.6%. Despite still having many legacy systems that have been targeted by the EPA rules to be replaced, AEP’s dividend payout ratio of about 60% of income is lower than many electric utility peers. AEP is also expected to post earnings per share growth of 5% or so ahead.
The key issues that some investors have brought up with AEP, outside of EPA regulatory changes, is that its history of dividends has not been a hike every year forever. The view ahead is that earnings and payouts should be able to ignore the past and keep ticking higher and higher over the coming years for more reasonable rather than more aggressive dividend hikes.
One thing that makes 24/7 Wall St. so excited about AEP is that when dividends were coming under attack from the current administration and tax hike plans, AEP helped launch the “Defend My Dividend” effort. Honestly, how much more pro-dividend can a company be?
AEP’s new dividend yield is 3.8%, which means that its dividend liability for the full year ahead will be about $1.1 billion.
Shares of American Electric were recently trading at $59.00, with a consensus analyst price target of $61.42 and a 52-week trading range of $52.29 to $65.38. The company has a total market cap of $29 billion.
ALSO READ: Why Disney Can Raise Its Dividend for Another Decade
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