If you’re looking for a utility stock with a juicy dividend, consider American Electric Power (AEP). After a difficult foray into the deregulated energy business, the company now receives about 95 percent of its earnings from the regulated energy sector.
That protects AEP from the extreme volatility typical of unregulated energy markets. The company, based in Columbus, Ohio, has operations in 11 states. Ohio is the biggest contributor of revenue at 40 percent. Virginia is next at 16 percent, and Indiana and Michigan tie for third at 10 percent.
So the company offers some diversity of income. It also offers a dividend yield of 5.1 percent, pretty impressive for such a conservative stock. The dividend has risen 24 percent over the past five years.
AEP registered net income of $353 million in the first quarter, up 3 percent from $344 million a year earlier. Revenue also rose 3 percent to $3.7 billion.
Rate hikes and cost reductions fueled the gains, counteracting a slide in household demand for power amid warmer winter temperatures, compared to a year ago.
Residential customers also were trying to save money in the face of rising prices for food and gasoline, AEP CEO Michael Morris said in a conference call. These customers cut their power consumption by 4.6 percent in the first quarter.
Yet, industrial customers boosted their power usage by 7.1 percent. Demand was particularly strong in Arkansas, Oklahoma, Louisiana, and Texas. Recent signs of economic recovery nationwide should give the company a boost, Morris said.
As for rate increases, $200 million worth have been approved so far this year or will kick in automatically and another $35 million are likely coming, he said.
Standard & Poor’s analyst Justin McCann gives AEP a four-star buy rating. “For 2011, we expect earnings to benefit from additional rate increases, as well as a full year of the rate increases implemented in 2010,” he writes.
“We also expect results to be aided by a gradual recovery in the economy, higher earnings from the river operations (AEP River Operations subsidiary) and lower interest expense.”
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