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Investors who include some form of social criterion in their investment decisions often face additional challenges in finding suitable investment candidates as most screens only focus on quantitative elements of a candidate. In this article, I highlight utilities that have a dividend growth history and that are constituents of Pax MSCI North America ESG Index ETF (NYSEARCA:NASI).

Pax MSCI North America ESG Index ETF

NASI is an ETF maintained by ESGShares devoted to sustainable investing (Note: it is closing effective March 13 due to low volumes and asset growth, but that doesn't prevent us from using it as a first test for sustainability criteria at the present time).

ESGShares defines sustainable investing as:

Sustainable Investing is the full integration of environmental, social and governance (ESG) factors into investment analysis and decision making. It seeks to deliver superior long-term investment performance by integrating traditional financial analysis with rigorous ESG analysis.

In addition, it believes that incorporating such criteria into investment decisions can lead to sound, long-term benefits as

  • Companies with stronger environmental performance often carry less risk, achieve greater efficiencies and are better positioned to take advantage of opportunities in a global marketplace where environmental issues increasingly matter.
  • Companies with strong employee relations and workplace practices often enjoy higher productivity, higher morale, lower turnover and absenteeism, and are therefore better positioned for growth than their less enlightened competitors.
  • Companies with better corporate governance practices may be less likely to have "blow-ups" or other surprises, financial or otherwise.

Additional Dividend Growth Criteria

In addition to asking that investment candidates be part of NASI, I utilized the additional criteria below:

  1. Current dividend yield > 3%
  2. Five-year compound average dividend growth rate > 6%
  3. Earnings Per Share Payout Ratio < 90%
  4. Debt / Equity < 2.0
  5. Record of increasing dividends each year for at least 10 years

These criteria yielded the following investment candidates: NextEra Energy (NYSE:NEE), Northeast Utilities (NYSE:NU), Sempra Energy (NYSE:SRE), and Wisconsin Energy (NYSE:WEC). Below is some basic information about each to help investors determine if they are worth further due-diligence.

NextEra Energy

NextEra Energy is a clean-energy company operating in 24 states and Canada, with its headquarters in Florida. The market capitalization is $30.62 billion. The dividend yield is 3.65%, and the dividend payment has grown at 8.2% over the last five years. The payout ratio is 58.74%. The TTM Price / Earnings ratio is 15.9, and the Price / Sales ratio is 2.14. Debt / Equity in the latest quarter is 170%, and the interest coverage ratio is 3x. Analysts are projecting just above 6% earnings per share growth over the next three to five years. Below is a chart from YCharts showing the dividend payment, earnings per share, and the payout ratio over the past 10 years.

NEE Dividend Chart

NEE Dividend data by YCharts

Northeast Utilities

Northeast Utilities is the largest utility in New England, providing electrical and natural gas services in Connecticut, Massachusetts, and New Hampshire. The market capitalization is $13.1 billion. The dividend yield is 3.52%, and the dividend payment has grown at 12.94% over the last five years. The payout ratio is 69.62%. The TTM Price / Earnings ratio is 22.1, and the Price / Sales ratio is 1.86. Debt / Equity in the latest quarter is 99%, and the interest coverage ratio is 3.9x. Analysts are projecting around 6.5% earnings per share growth over the next three to five years. Below is a chart from YCharts showing the dividend payment, earnings per share, and the payout ratio over the past 10 years.

NU Dividend Chart

NU Dividend data by YCharts

Sempra Energy

Sempra Energy is a diversified utility with a lot of exposure to natural gas that has its headquarters in San Diego, California. The market capitalization is $19.0 billion. The dividend yield is 3.21%, and the dividend payment has grown at 15.24% over the last five years. The payout ratio is 67.42%. The TTM Price / Earnings ratio is 22.5, and the Price / Sales ratio is 1.97. Debt / Equity in the latest quarter is 120%, and the interest coverage ratio is 2.2x. Analysts are projecting around 7% earnings per share growth over the next three to five years. Below is a chart from YCharts showing the dividend payment, earnings per share, and the payout ratio over the past 10 years.

SRE Dividend Chart

SRE Dividend data by YCharts

Wisconsin Energy

Wisconsin Energy provides electric and natural gas to customers in Wisconsin, and the upper peninsula of Michigan. The market capitalization is $9.5 billion. The dividend yield is 3.29%, and the dividend payment has grown 20.29% over the last five years. The payout ratio is 50.63% (management has indicated that it sees this ratio moving towards 60% over the next few years). The TTM Price / Earnings ratio is 17.6, and the Price / Sales ratio is 2.24. Debt / Equity in the latest quarter is 127%, and the interest coverage ratio is 2.9x. Analysts are projecting around 5.3% earnings per share growth over the next three to five years. Below is a chart from YCharts showing the dividend payment, earnings per share, and the payout ratio over the past 10 years.

WEC Dividend Chart

WEC Dividend data by YCharts

Source: 4 Utilities For Socially Responsible Minded Dividend Growth Investors

Additional disclosure: Data in this article used for the screen was sourced from David Fish's Dividend Champions spreadsheets, available at dripinvesting.org/Tools/Tools.asp. Financial information for each stock was sourced from Fidelity. YCharts provided the graphs in this article.