FirstEnergy (FE), AEP (AEP), and Dominion (D) Stock Analysis

I am getting ready to move into a new apartment on July 1st.  It is going to start the beginning of an amazing new chapter in my life.  I cannot wait.  One of the pre-move chores is to set up your new place’s utilities.  I shopped the price around to eventually settled on the lowest cost provide.  This got me thinking, why not spend some time and run each of the companies I shopped around through the Dividend Diplomats Stock Screener?  Continue reading to see how FirstEnergy (Ticker: FE), AEP (Ticker: AEP) and Dominion Resources (Ticker: D) measure up against each other.

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About the Companies

Using each of the companies profiles on Yahoo! Finance, we provided a brief description about the company.  We included the link (Click the name of the company’s) to each of the company’s respective Yahoo! Finance profile in which we obtained the information listed below.

First Energy: “FirstEnergy Corp., a diversified energy company, generates, transmits, and distributes electricity in the United States.  The company operates through Regulated Distribution, Regulated Transmission, and Competitive Energy Services segments.  It owns and operates fossil, nuclear, oil and natural gas, and wind and solar power generating facilities.  The company also provides energy-related products and services to wholesale and retail customers…. The company distributes electricity through within 65,000 square miles in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey, and New York.  FirstEnergy Corp. was founded in 1996 and is based in Akron, Ohio.”

AEP: “American Electric Power Company, Inc., a public utility holding company, is engaged in the generation, transmission, and distribution of electricity for sale to retail and wholesale customers.  The company generates electricity using coal and lignite, natural gas, nuclear energy, and hydroelectric and other energy sources.  It also supplies and markets electric power at wholesale to other electric utility companies, rural electric cooperatives, municipalities, and other market participants… American Electric Power Company, Inc. was founded in 1906 and is headquartered in Columbus, Ohio.”

Dominion Resources:Dominion Resources, Inc., together with its subsidiaries, engages in producing and transporting energy in the United States.  The company operates through three segments: Dominion Virginia Power (DVP), Dominion Generation, and Dominion Energy.  The DVP segment is involved in regulated electric transmission and distribution operations that serve residential, commercial, industrial, and governmental customers in Virginia and North Carolina.  The Dominion Generation segment is engaged in electricity generation through coal, nuclear, gas, oil, hydro, and renewable sources; and related energy supply operations… Dominion Resources, Inc. was founded in 1909 and is headquartered in Richmond, Virginia.”

Dividend Diplomats Stock Screener

Now, onto the fun part.  Our basic stock screener focuses on three pillars: Comparative P/E, Payout Ratio, and Dividend Yield/Growth (Read more about our dividend screener and philosophy behind each pillar here).  Let’s see how our three stocks stack up against each other.

Screener #1: Price to Earnings Comparison

We will use three different P/E ratios for the analysis: the P/E using the trailing twelve month earnings (ttm), the P/E using the annualized Q1 diluted EPS, and the Forward P/E using a consensus estimated forward EPS figure.  I used three different ratios because I believe it will help understand the full picture of how a company is valued based off of historical performance (ttm),  how a company is valued based on their most recent performance (annualized Q1 diluted EPS), and how a company is value based on future earnings (Forward P/E).   In addition, I do not like the idea of assessing a company based solely off of the stale information of the ttm ratio or solely on the estimate future earnings (We all know how things can quickly change).

Most Favorable Stock Using Screener #1: AEP

Energy Price to Earnings Analysis

Source: We used the Q1 diluted EPS  per each company’s 10-Q submitted to www.edgar.sec.gov.

Screener # 2: Payout Ratio

Ideally, we look for companies that have a Payout Ratio of <60%.  Utility companies will always have a payout ratio of close to 60% (or greater) due  to the industry standard of paying high dividends.  Still, even though the industry sets a high benchmark for payout ratio, it is still important for a company to have a ratio of less than 60% so that the company can continue to grow the business and most importantly, their dividend going forward!

Most Favorable Stock Using Screener #2: AEP

Energy Payout Ratio

Source: We used the Q1 diluted EPS  per each company’s 10-Q submitted to www.edgar.sec.gov.

Screener #3: Historical Dividend Growth

Our last screener represents the company’s ability to historically grow their dividend.  We used the company’s dividend history and average the last 4 dividend increases to show how large management has increased the company’s dividend and whether this increase is outpacing the inflation rate.  From a historical standpoint, FirstEnergy’s management typically maintained a yield over 5% and did not grow their dividend annually.  Up until the recent slashing of the dividend to $.36/share, management maintained a consistent quarterly dividend of $.55/share through our analysis.  Otherwise, AEP and D have experienced growth in excess of inflation over the last 4 dividend increases.

Most Favorable Stocks Using Screener #3: D and AEP (Both have increases greater than inflation)

Energy Dividend Analysis

Conclusion

Based on our analysis,  AEP was the only company that passed all three of the Dividend Diplomat Stock Screener’s due to the low Payout Ratio of 43%.  AEP has the lowest valuation based on its current valuation levels for our three P/E ratios reviewed above and all three of AEP’s P/E ratios were also below the current S&P P/E ratio, which is another positive.   Lastly, only AEP and D have grown their dividend at a rate in excess of inflation.  Based on the analysis, I will continue to monitor AEP going forward to determine if I should increase my position in the company.  While the company has a P/E ratio that is less than the S&P 500, it still has a P/E (ttm) ratio of greater than 15.  Based on my analysis, it is the only one of the three I will add to my watch list going forward.

 DISCLOSURE: I OWN POSITIONS IN TWO OF THE STOCKS IN THE ANALYSIS, FE and AEP. I DO NOT RECOMMEND ANY DECISION TO THE READER or ANY USER, PLEASE CONSULT YOUR OWN RESEARCH. THIS IS ACTUAL DATA, ANALYSIS, HOWEVER I BASE NO INVESTOR RECOMMENDATION.  THANK YOU FOR YOUR UNDERSTANDING.
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