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After Exelon (NYSE:EXC) slashed its dividend (as we predicted), utility investors may be looking for a more stable dividend growth idea, and that is Dividend Growth Newsletter portfolio holding PPL (NYSE:PPL), in our view. PPL posted strong fourth quarter results last Thursday morning, with revenue (net of a one-time hedging gain) jumping 6% year-over-year to $3.2 billion, exceeding consensus expectations. Earnings were a few cents better than consensus estimates, falling 31% year-over-year to $0.49 per share on an adjusted basis. Of course, this figure includes the spectacular gain from the prior year's hedging activities, as well as a higher share count from the firm's acquisition of the Midlands UK business in 2011.

Most importantly for income investors, PPL raised its quarterly dividend 2.1% to $0.3675 per share, which equates to an annual dividend yield of 4.8% at current levels. We plan to update our dividend report soon. Although PPL doesn't score particularly well on the Valuentum Dividend Cushion, the firm has received favorable results on its requests for rate increases and has an unregulated energy business that can provide additional income, so it isn't exclusively at the mercy of regulators. We mainly hold PPL in our Dividend Growth portfolio to achieve exposure and proper diversification to the utilities sector. This represents a very rare case where the Dividend Cushion is not the primary consideration for inclusion to the portfolio, as portfolio diversification considerations can take precedent at times.

Earnings contributions from Kentucky were solid during the fourth quarter, two cents higher than a year ago, coming in at $0.08 per share. However, total earnings were down slightly compared to the same period last year. Rates in Kentucky increased on January 1, and the new increase will allow the regulated Kentucky business to add $100 million in annual revenue going forward. Maintenance and operating expense headwinds weighed on segment earnings, but the firm believes the segment will post significantly better earnings in 2013. Compound annual rate base growth is anticipated to be close to 9% through 2017, which means the segment is likely to experience solid performance over the intermediate term.

The UK regulated business, acquired in 2011, posted earnings growth of $0.01 in the fourth quarter versus the prior-year, leading to a full-year earnings contribution of $1.19 per share. The biggest driver of the year-over-year income gains were four additional months of operations, but the firm also benefited from higher net revenues that resulted from bonuses for improved operations. 2013 will be an integral year for the UK business because the firm will work on crafting proposed rate increases to go in effect in 2015 for the subsequent 8 years. The acquisition has outperformed expectations, and a favorable ruling with respect to the rate increases could make the deal look even better.

In its Regulated Pennsylvania business, earnings were halved during the fourth quarter, while the annual EPS contribution fell nearly 30% compared to the same period a year ago. Regulators did approve a rate hike that will help boost annual revenue by $71 million. Due to the rate increase (took effect January 1, 2013), the company sees segment earnings increasing 30% in 2013.

The electricity supply business had a tough year in 2012 as a result of lower energy demand, higher costs, and lower capacity utilization. Though the company has worked to adjust operations to "meet challenging market realities," results aren't expected to improve in 2013 due to planned outages, as well as higher costs from fuel and operations. The segment will deal with turbine issues at its Susquehanna nuclear facility in 2013 that we believe will account for a large chunk of earnings weakness.

Overall, we thought the year was plenty of positive developments at PPL, and while the company anticipates $4.5 billion in capital expenditures during 2013 (shown above), we believe free cash flow will again be positive by mid-decade. We like the position as a solid anchor in the portfolio of our Dividend Growth Newsletter.

Source: PPL Posts Strong Fourth Quarter; We Still Like The Company

Additional disclosure: PPL is included in our Dividend Growth portfolio.