With year-to-date gains of over 14%, American Electric Power Company (AEP) stock is outperforming the market by a wide margin this year. The stock also has a healthy dividend yield of 2.88%, which, while below its level at the beginning of the year, remains quite strong. In my previous article, I had noted that AEP stock was a buy amid the rise in tensions between the U.S. and Europe over Greenland. While these issues have since subsided, at least for now, global geopolitical tensions are running at elevated levels amid the war in Iran. Let's now examine whether AEP is still a buy despite double-digit gains this year.
AEP Has the Largest Transmission Network in the U.S.
AEP is a regulated utility whose earnings are quite predictable and linear. It is among the largest electricity producers in the U.S., with a diverse generating capacity of 29,000 megawatts, and it boasts the largest transmission network, owning and operating nearly 90% of the 765 kV infrastructure in the country. The footprint is set to rise further after the award of new projects.
During their Q4 2025 earnings call last month, AEP doubled the 2030 additional contracted load forecast to 56 gigawatts as it continues to witness strong demand, particularly from large customers. AEP’s 2025 operating earnings per share came in at $5.97, which was slightly above the upper end of its guidance. For this year, the company expects the metric to be between $6.15 and $6.45, and the management reaffirmed its guidance of annualized growth of 7%-9% between 2026 and 2030. The company reported a return on equity of 9.2% last year, which it projects will rise to 9.5% over the next five years.
American Electric Is Benefiting From Soaring Data Center Power Demand
Much of the incremental growth for AEP would come from data centers. Hyperscalers are doubling down on building artificial intelligence (AI) infrastructure, and the upcoming data centers would need a lot of electricity. Apart from the AI opportunity, AEP is also benefiting from industrial capex in the areas that it serves. Among others, it would supply power to Nucor’s (NUE) steel mill in West Virginia.
Meanwhile, AEP is in a capital-intensive business and has laid out a base capex plan between 2026 and 2030 of $72 billion, with an additional up to $8 billion in incremental projects, to support its growth.
AEP Has Paid Dividends for Over a Century
Like fellow utility companies, AEP is quite generous with dividends and has paid dividends for over a century. Last year, it increased its quarterly dividend by 2 cents to 95 cents. The dividend growth in the coming years should be in high single digits, which is in line with the earnings growth that the company is projecting.
AEP Stock Forecast
Wall Street analysts have warmed up to AEP stock this year, and it is currently rated as a “Strong Buy” or “Moderate Buy” by nearly half of the analysts polled by Barchart, while the corresponding number a month ago was just over 36%. AEP’s mean target price of $136.84 is, however, only slightly higher than current price levels, and the Street-high target price of $153 is 16% higher.
Should You Buy AEP Stock?
While I remain constructive on AEP, I don’t see much upside potential in the short term, given the already elevated valuations, as the forward price-to-earnings (P/E) multiples have expanded to almost 21x, which, while not frothy, doesn’t offer much margin of safety. All said, I would keep AEP stock on my watchlist and would wait for a better entry point, as the short-term risk-reward does not look too attractive at these levels.
