American Electric Power Company (NASDAQ:AEP) Is Increasing Its Dividend To $0.95

The board of American Electric Power Company, Inc. (NASDAQ:AEP) has announced that it will be increasing its dividend by 2.2% on the 10th of December to $0.95, up from last year's comparable payment of $0.93. This makes the dividend yield about the same as the industry average at 3.2%.

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American Electric Power Company's Projected Earnings Seem Likely To Cover Future Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, American Electric Power Company's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 4.4%. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for American Electric Power Company

American Electric Power Company Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was $2.12, compared to the most recent full-year payment of $3.72. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. American Electric Power Company has seen EPS rising for the last five years, at 12% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think American Electric Power Company will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think American Electric Power Company is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for American Electric Power Company (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.