American Electric Boosts Dividend

Zacks

American Electric Power Co. (AEP) has announced that its Board of Directors has increased its quarterly dividend by 4.3%, bringing the annualized dividend to $1.96 per share from the previous payout of $1.88 per share. The board commented that the company is well-positioned for earnings growth in the range of 4% to 6%.

Following the hike, the company will now pay a quarterly dividend of 49 cents as against the 47 cents paid earlier. The said dividend will be paid on Jun 10, 2013, to shareholders of record as of the close of business on May 10, 2013. The current dividend generates a dividend yield of 3.87%.

American Electric had made its last dividend increase in Oct 2011. It had increased its quarterly dividend by 2.2% from 46 cents per share to 47 cents per share. It has been paying dividends for the last 412 consecutive quarters.

The trend of dividend increase indicates the company’s financial strength. As of Dec 31, 2012, the company had cash and cash equivalents of $279 million, up from $221 million as of Dec 31, 2011. In 2012, net cash flow from operating activities was $3,804.0 million, up from $3,788.0 million in 2011.

At the meeting, the company also announced that it will increase its capital investments to approximately $3.6 billion in 2013, up from $3.1 billion in 2012. It intends to invest in the development and operation of transmission assets and modernize its generating fleet to comply with new environmental regulations.

The utility sector is known for its defensive nature and its reputation as a dividend payer adds to its defensive stance. In Feb 2013, Public Service Enterprise Group’s (PEG) Board of Directors announced a 1.4% increase in the dividend bringing the quarterly payout to 36 cents per share from the prior level of 35.5 cents. On an annual basis, the common stock dividend offering comes to $1.44 per share, up from the prior payment of $1.42 per share.

In Jan 2013, another stock in the space, ALLETE Inc. (ALE) announced that its Board of Directors has approved an increase in the quarterly dividend rate by 1.5 cents. The annualized dividend rate of the company will come to $1.90, up 3.3% from the prior rate of $1.84.

American Electric is expected to release its first quarter 2013 results on Apr 26, 2013. The Zacks Consensus Estimate for first quarter 2013 is currently at 81 cents per share, up an estimated 0.6% year over year.

American Electric is one of the largest investor-owned utility holding companies in the country, catering to over 5 million customers spread over 11 states. Going forward, the company offers stable earnings through consistent performance in core regulated operations, growth through transmission network expansion and an above-average dividend yield. The company presently retains a short-term Zacks Rank #2 (Buy).

Pike Electric Corporation (PIKE) also looks good in the space carrying a Zacks Rank #1 (Strong Buy).

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