Income Investor: AEP Serves Up Power To the Midwest


American Electric Power ( AEP ) can make a claim few companies can: It has paid a dividend for more than 400 straight quarters.

That's more than a century of dividends. They've been rising in the past few years, but haven't been going straight up.

Columbus, Ohio-based AEP sells electricity in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia.

It sells both retail and wholesale power, has 38,000 megawatts of generating capacity and more than 40,000 miles of transmission lines. It produces power using coal and lignite, natural gas, and nuclear and hydroelectric power.

AEP was founded in 1906 as the American Gas and Electric Co., bringing together the utilities of a hodgepodge of small towns stretching from the Atlantic Ocean to Illinois. Over the years, it has bought and sold a number of operations.

When the federal government broke up the public utility holding companies in 1935, AEP was forced to sell parts of its operation, but kept its core holdings.

AEP paid out 60 cents a share in quarterly dividends in 2003, but dropped it to 35 cents in 2004. It's been rising since then, but has not yet gotten back to its previous level.

Dividends have just hit 50 cents a share, which works out to a 4% annual yield. The company has a five-year dividend growth rate of 4%, not particularly impressive compared to some other utility stocks.

It had three straight years of earnings decline from 2002 to 2004, where earnings dropped 15%, 12% and 8%. Since then, it has only had one significant down year, 2009, when earnings fell 7%. Since then, earnings have been growing, at best, in the low single digits. EPS shrank fractionally in 2012.

It has a five-year Earnings Stability Factor of 3 on a 0 to 99 scale, where low numbers equate to steady earnings growth.

It's been reducing its debt-to-equity ratio from 114% three years ago to 103% two years ago to 102% last year.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: AEP

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