This high-yield dividend stock raised payout by 6%. Should I buy?

In October 2023, American Electric Power (NASDAQ: AEP) raised its quarterly dividend by $0.05 to $0.88. The increase is about 6%. That dividend hike fulfills a crucial management pledge to dividend investors.

AEP has a good yield. While a 4.1% dividend yield may not be as high as a 5% virtual no-risk CD, investors shouldn't overlook AEP. A stable dividend stock like AEP may boost its dividend, unlike a CD, which won't rise over time.

That 6% rise was observed. This utility's 6% increase exceeds the historical inflation rate of 3%, despite significant inflation. If AEP grows at 6% a year, its dividend will gain buying power.

There's another significant information. Using Vanguard Utilities ETF as a proxy, utility averages 3.5%. AEP investors earn 0.5 percent more. That may not seem like much. However, dividend investors' income increased by 14%. The plot is good, but what happens next?

Clean energy is helping AEP flourish. AEP will never be fascinating as a regulated utility. Its market monopoly is beneficial, but authorities must approve its rates and capital investment plans, which limits expansion. The best investors can hope for is gradual and steady.

Only the utility industry is changing, as corporations like AEP switch from coal to renewables. This is part of AEP's long-term ambition to reach net zero emissions by 2045. Don't be sidetracked by the company's non-regulated renewable asset sale. AEP took this step to focus on creating solar and wind power projects for its own consumption, not to sell power under long-term contracts.

The two methods differ greatly. Competitively bargained power transactions might have unfavorable conditions. Clean energy investments with government approval have assured returns. They also set the stage for client rate rises. Indeed, regulators must assure fair returns for regulated utilities or they won't attract the money they need to deliver dependable service.

This major energy shift supports AEP's 6% to 7% profits growth forecast. The most intriguing element for dividend investors is that management has vowed to raise the dividend with profit growth. The recently announced 6% dividend raise matches predicted profit growth.

Dividend investors should dig deep. Utility companies are usually safe dividend stocks. AEP qualifies. While it may not thrill you, it might form the basis of a more diversified income strategy. Now that the dividend yield is near the top of the stock's 10-year yield range, it may still be a good time to purchase. Take advantage of this chance by digging further today.

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