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If you are interested in cashing in on American Electric Power Company, Inc.’s (NYSE:AEP) upcoming dividend of US$0.67 per share, you only have 2 days left to buy the shares before its ex-dividend date, 09 May 2019, in time for dividends payable on the 10 June 2019. Should you diversify into American Electric Power Company and boost your portfolio income stream? Well, keep on reading because today, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does American Electric Power Company pass our checks?
The company currently pays out 62% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect AEP’s payout to remain around the same level at 64% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.4%. Furthermore, EPS should increase to $4.22.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of AEP it has increased its DPS from $1.64 to $2.68 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes AEP a true dividend rockstar.
Relative to peers, American Electric Power Company produces a yield of 3.1%, which is on the low-side for Electric Utilities stocks.
Keeping in mind the dividend characteristics above, American Electric Power Company is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three pertinent aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for AEP’s future growth? Take a look at our free research report of analyst consensus for AEP’s outlook.
- Historical Performance: What has AEP’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.