U.S. utilities need more capacity as data centers use more electricity. Morningstar analysts expect data-center electricity demand to quadruple by 2030 and rise sixfold by 2035. According to estimates, data centers could potentially account for 24% of U.S. electricity use by 2030, with utilities planning to spend $240 billion in 2026 and $1.4 trillion through 2030 on upgrading the grid and transmission infrastructure.
American Electric Power (AEP) is part of that spending push. Based in Columbus, Ohio, the company operates about 225,000 circuit miles of distribution lines, serves 5.6 million customers, and has a market capitalization of roughly $70.6 billion. On Oct. 20, American Electric Power raised its quarterly dividend to $0.97 per share, up 2.1% from its previous $0.95 payout.
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But with major projects to fund, can American Electric Power grow earnings enough to keep raising its dividend? Let’s find out.
The Earnings Behind the Dividend
American Electric Power generates and delivers electricity to 5.6 million customers across 11 states. Shares of AEP stock have climbed 11% over the past 52 weeks and 12% year-to-date (YTD).
www.barchart.comAEP stock trades at 20.4 times forward earnings, which is above the sector median of 17.9 times.
American Electric Power recently raised its quarterly dividend by $0.02 to $0.97 per share, extending its dividend-growth streak to 16 years. The payment is due Dec. 10 to shareholders of record on Nov. 10. The previous $0.95 quarterly payment amounted to $3.80 annually, with a 2.9% yield and a quoted forward payout ratio of 63.24%. The new payment brings the annual dividend to $3.88, yielding about 3% at a share price of $129.22.
Recent earnings were mixed. Second-quarter revenue increased by $358 million, or about 7% year-over-year (YOY), to $5.45 billion from $5.09 billion. However, GAAP earnings fell $513 million to $713 million, while EPS dropped to $1.31 from $2.29. The prior-year results included a substantial tax benefit, making the comparison less straightforward. Non-GAAP operating earnings fell by a smaller $24 million to $742 million, with operating EPS slipping to $1.36 from $1.43.
For the first half, revenue rose to $11.47 billion from $10.55 billion. Operating earnings increased to $1.63 billion, or $3.01 per share, from $1.59 billion, or $2.98 per share. GAAP earnings also fell to $1.59 billion, or $2.92 per share, from $2.03 billion, or $3.80 per share.
Still, American Electric Power raised its full-year operating EPS guidance to $6.25 to $6.55 from a prior range of $6.15 to $6.45, leaving room to cover the higher dividend. The company's corresponding GAAP EPS estimate, after recorded adjustments, is a range of $6.16 to $6.46.
Grid Investments Support Future Growth
American Electric Power is studying a 960 megawatt nuclear project with X-Energy (XE) at a former coal plant site in Sullivan County, Indiana. Amazon (AMZN) is helping fund development and plans to buy the power under a long-term contract covering construction and operating costs. The project would use X-Energy’s Xe-100 small modular reactors (SMRs), but construction still needs a final investment decision. The agreement aims to keep power affordable for Indiana Michigan Power customers while limiting AEP’s financial risk.
American Electric Power also plans to invest about $4 billion in a 702 MW project using Bloom Energy (BE) fuel cells near Cheyenne, Wyoming. A 20-year power purchase agreement with Alphabet's (GOOGL) Google supports the project. Google will buy electricity from Cheyenne Fuel Cell, which is almost entirely owned by American Electric Power. Construction is planned for 2026, with the facility expected to be fully operational by the end of 2028.
In Ohio, AEP Ohio, the U.S. Department of Energy (DOE), and SB Energy have also announced investments to serve a planned 10 gigawatt data-center campus at a site in Piketon, Ohio, with power anticipated to reach the site in 2029. The plan includes new 765-kilovolt transmission infrastructure, subject to approval. SB Energy has committed to paying the $4.2 billion transmission cost to “help avoid increases to transmission rates for Ohio residents.”
What Do Analysts Expect From AEP Stock?
American Electric Power’s next earnings report is due Oct. 28, before the market opens. Analysts expect September-quarter EPS of $2.04, up 13% from $1.80 a year earlier. For full-year fiscal 2026, analysts expect EPS of $6.40, up 7% YOY from $5.97.
But analysts don’t all see the same buying opportunity. On Aug. 5, Citigroup analyst Ryan Levine kept a “Hold” rating and a $142 price target on AEP stock. Raymond James was more upbeat back in May, keeping an “Outperform” rating and raising its target to $144 per share.
Overall, AEP stock has a consensus “Moderate Buy” rating based on 23 analysts with coverage. The average price target of $139.68 suggests potential upside of 8% from current levels, excluding dividends.
www.barchart.comConclusion
American Electric Power looks capable of growing earnings while keeping its dividend covered, although investors should expect steady increases rather than big payout jumps. Its raised guidance and customer-backed energy projects support that case, but AEP stock’s valuation premium leaves less room for disappointment. My take is that shares are more likely to move modestly higher than deliver a sharp rally, provided earnings meet expectations and projects stay on track. For income investors, the roughly 3% yield adds to that potential return. AEP stock looks more like a steady income holding with measured upside than a bargain growth stock.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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