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AEP vs. XEL: Which Utility Powers Your Retirement?
24 Oct
Summary
- AEP offers greater dividend protection with contracted growth.
- XEL faces wildfire costs and a negative credit outlook.
- Both utilities are experiencing increased demand from data centers.
When considering utilities for a retirement income portfolio, American Electric Power (AEP) and Xcel Energy (XEL) present distinct profiles. AEP, with a year-to-date gain of 14.82%, trades at approximately 20 times forward guidance. XEL, which has seen a 1.34% rise over the same period, trades at about 19 times forward guidance.
XEL's dividend yield is 3.03%, slightly higher than AEP's 2.97%. However, AEP's dividend appears more secure due to stronger coverage and a cleaner balance sheet. XEL is contending with substantial wildfire costs, estimated at $503 million from the Smokehouse Creek fire alone, plus $640 million from Marshall Wildfire settlements. This financial pressure, combined with a negative outlook on its unsecured debt from Moody's, raises concerns.
In contrast, AEP's five-year capital plan of $78 billion is expected to drive nearly 11% annual rate base growth. It boasts 69 gigawatts of contracted load additions through 2030, significantly exceeding XEL's data center business growth. AEP's dividend, while yielding slightly less, is considered better protected for retirees needing reliable income.
