American Electric: Power Play

03/02/2015 8:00 am EST

Focus: STOCKS

David Fish

Executive Editor, Moneypaper

With the major indexes again recording new all time highs, it becomes obvious that finding bargain stocks becomes a difficult task, notes dividend reinvestment expert David Fish in Direct Investing.

Although many great companies are recording higher earnings (and may continue to do so), nobody can predict when the next disruption may occur or how deep a dive stocks may take.

At such times, it's good to remember that the safest investments are often focused on what people need, in bad times and good.

Food, fuel, and electricity are necessities, so the companies that provide them won't be going out of business any time soon, nor will their stocks suffer as badly if the market should take a tumble.

Founded in 1906 and based in Columbus, Ohio, American Electric Power (AEP)—our latest featured dividend reinvestment idea—is engaged in the generation, transmission, and distribution of electric power to retail customers and the supply and marketing of wholesale electricity to other utility companies and municipalities.

It serves about 5.3 million customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia.

Consensus estimates call for the company to earn about $3.52 per share this year and $3.70 in 2016, compared with $3.43 in 2014.

After being raised for five straight years, the $2.12-per-share annual dividend provides a yield of 3.7% and represents a payout ratio of just over 61% of earnings.

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