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Why AEP’s Payout Ratio Is Concerning Investors

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AEP’s payout ratio

American Electric Power (AEP) has a solid dividend payment history. It has been paying a cash dividend for the last 430 consecutive quarters. However, AEP’s current payout ratio might concern investors. The payout ratio indicates how much profit a company distributes to shareholders as dividends. In 2016, AEP’s payout ratio was 182% against its five-year historical average ratio of 75%.

AEP’s higher payout ratio shows that the utility gave away more in the form of dividends from reserves than it earned in profits last year. AEP continued its dividend payments even after its earnings were affected by major power plant write-offs in 2016.

AEP stats

The payout ratios of Southern Company (SO) and Duke Energy (DUK) were 85% to 90% in 2016. You can compare dividend profiles of the top utilities (XLU) (VPU) in Market Realist’s series Behind the Dividend Yields of Top SPX Utilities.

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