Recent buy – American Electric Power (AEP)

Since my capital allocation of 200 EUR/mo. allow me to make investments only once a quarter I decided thats it is quite good to note about my purchases. They are rare and people like rare things, right? 🙂

Ok since my investment account filled to 500$ line, which I view as the minimum investment line, I started to look for new investment. Have to say it is a very hard work these days. Dividend yields are low and P/E are high. I decided to look at sectors who under-performed the broad market and one of such sectors is Utilities, which took a hit lately and year growth amounted only to +4% compared to +23% of S&P.

Utilities

What I have done is put up together 8 of largest and popular Utilities companies and compared their metrix, which you can see above. What I liked about these companies is that average forward P/E is bellow 20 and most of dividend yield are above 3%. NEE sanded out with quite high P/E and low dividend yield. Next we have dividend growth, DUK and ED has some of the lowest dividend growth reaching only +2%. Payout is also high for some of the companies D, DUK and SO, but no critical >100%. Then what caught my eye is that this sector is quite leveraged and low on equity. Equity is just above 25%. Debt levels are quite high with NetDebt/EBITDA level something around 6 with D and DUK even >8, which I find a big to high. EIX stands out with quit good figures, but they have some possible troubles with California fires and might get huge claims that might force them to halt their dividends like PCG did. Actually it was quite hard to decide which company to pick. There all had their prons. and cons. but none had clear advantage. And the main reason why I chose AEP was… due to my lousy broker that actually had only this share for me to buy 😦 Either way it was not a bad choice so I took it.

AEPSo yesterday we bought 8 shares of American Electric Power paying 67,39 USD / share or paying 549 USD (incl. fee). With current dividends of 0.62 USD/quarter YOC stands at nice 2,6% after tax (-30%) giving us +13,9 USD or +11,4 EUR annual dividend income and increasing our Passive dividend income to 352 EUR. or 29 EUR/mo. Thats is not much, and stands at only 2% of our average 1,6 kEUR/mo. wage, but its nice to see this little growing passive income 🙂

So AEP trades for 17,4 forward P/E and similar for present P/E, which is actually quite good level in today’s overpriced market. Yield before tax stands at nice 3.6%. Average 5y dividend growth looks quite low only +4%. Last dividend increase from 0,59$ to 0,62% represented +5% growth. Payout stands at around 60-65% which is acceptable level. Equity 28%, looks a bit low but is above its peers average so ok. What I like is that this company has one of the lowest leverage compared to other companies with NetDebt/EBITDA of 5,3 which is quite good for a Utility company taking into account that average of peers is around 6. Also what I liked is that this is a purely vertically integrated Electricity Utility that is not engaged in gas business. Electricity is something that should defiantly stay in the future and gas as well as oil is quite volatile and might be the thing of the past. Company operates in 11 US States so is not exposed to one particular area.

So this is our latest purchase. I’m not super exited about it, but think that its a good buy for diversification and stable growing dividend income. What do you think about AEP or other Utility companies?

 

 

10 thoughts on “Recent buy – American Electric Power (AEP)

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  1. Congrats on your recent buy!
    Stay focused on diversification as that’s the core for low risk portfolio.

    Personally, I was investigating Europe’s share market and the Electricité de France S.A. (EDF) is the one that caught my eyes. P/E ratio of EDF is 15 a little lower than AEP (P/E 17). Price/book EDF 0.84, AEP 1.85 I guess that’s only because EDF is at the down trend and the AEP is hiking up. Aside from that, EDF management have more issues compared to AEP. All in all, I wish you great dividend yield and may the AEP stock go north 🙂

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    1. Thanks. I would be more glad if not the stock price goes up but their EPS. If that grow so will the dividend and with it the price 🙂 good luck with your researches as well. Will be interesting to see what you found in europe.

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  2. Good luck on your purchase p2035. Even though you’re not super excited about the purchase, you add diversification to your portfolio by investing in utilities and will no doubt reap the benefits of years of compounding dividend growth if you stay with the company that long. Thanks for laying out the utility companies the way you did. I wasn’t considering AEP but I did have my eye on SO. It’s nice to see how the companies stack up against each other.

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    1. Thanks DP. Yeee I was targeting purchase of OHI and then that stupid EU regulation hit and im out of US REITs with their bid juicy dividend yields 😦 Glad you liked the comparison. Im thinking to do the research a bit more and have that comparison more broader 🙂 SO is a good buy what comes to high yield and good P/E. Also their debt is not that high.

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    1. Hi ED look ok as well but their PE and debt level is slightly higher then AEP. All utilities looks quite atractive after latest dips in their prices. I would consider SO also due to their atractive yield and P/E.

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  3. Hey P35, I own AEP. It has been a quiet steady performer. I haven’t looked at it much recently, but if it is like a lot of the utility, REIT and other interest rate sensitive stocks here in the US, it must be coming into buy territory. Tom

    ps. I think that is a comment from Mr. Robot above. He is one of my dividend stock buddy’s in Europe. Tom

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    1. Thanks for droping by Dividendsdiversity 🙂 Yes utilities are a good bargan now as almost all of them has suffered good dip lately. Interest increase should harm their earning as yes they are quite leveraged, but what I found in comparison that AEP is a bit less into debts then other Utilities so they should do better 🙂

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  4. Great Work there ! I recently bought AEP myself as well. Great utility company with decent growth prospects.

    Good buy, Keep it up.
    TDK

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