In this series of articles, I will be identifying which S&P 500 stocks for various S&P industries are best suitable for income investors, based on dividend growth and yield. For Part 25, I will be taking a look at Regulated Gas & Diversified Utility stocks. These stocks include:
- AGL Resources (NYSE:GAS)
- CenterPoint Energy (NYSE:CNP)
- NiSource (NYSE:NI)
- Integrys Energy Group (NYSE:TEG)
- Dominion Resources (NYSE:D)
- Exelon Corporation (NYSE:EXC)
- FirstEnergy (NYSE:FE)
- PPL Corporation (NYSE:PPL)
- Public Service Enterprise Group (NYSE:PEG)
- Sempra Energy (NYSE:SRE)
- Duke Energy (NYSE:DUK)
- The AES Corporation (NYSE:AES)
- Entergy Corporation (NYSE:ETR)
When ranking the dividend paying stocks by yield, the order is as follows:
- Entergy - 4.55%
- PPL - 4.42%
- Duke Energy - 4.41%
- FirstEnergy - 4.40%
- Public Service Enterprise Group - 4.17%
- Integrys Energy Group - 4.09%
- Exelon - 3.89%
- CenterPoint Energy - 3.88%
- AGL Resources - 3.79%
- Dominion Resources - 3.51%
- NiSource - 2.71%
- Sempra Energy - 2.58%
- The AES Corporation - 1.34%
When ranking them by dividend growth over the past five years, the order is as follows:
- Sempra Energy - 69.23%
- Dominion Resources - 37.14%
- The AES Corporation - 25.00%
- CenterPoint Energy - 25.00%
- AGL Resources - 13.95%
- NiSource - 13.04%
- Public Service Enterprise - 11.28%
- Entergy - 10.67%
- Duke Energy - 10.42%
- PPL - 7.97%
- Integrys Energy Group - 0%
- FirstEnergy - (34.50%)
- Exelon - (41.0%)
Out of the thirteen total stocks, I am not going to consider The AES Corporation as a plausible buy for dividend growth investors due to its low yield in comparison with similar utility stocks.
I also am not going to consider Integrys Energy Group, FirstEnergy, or Exelon, as they all have zero to negative dividend growth over the past five years. That leaves nine stocks still in consideration.
Sempra Energy offers the lowest yield out of this group, but also has displayed the highest dividend growth over the past five years. Entergy offers the highest yield, but has seen slow dividend growth of just 10.67% over the past five years.
In terms of revenue, over both the past five years the following stocks have seen a decline in revenue. Because of this, I am removing these stocks from consideration, since long-term trends in revenue loss tend lead to slow, zero, or negative future dividend growth.
- NiSource - 22.1% loss in revenue over the past five years
- Dominion Resources - 17.3% loss in revenue over the past five years
- Public Service Enterprise - 14.3% loss in revenue over the past five years
Out of the remaining stocks, AGL Resources and Duke Energy have seen the highest revenue growth over the past five years, while CenterPoint Energy and Entergy have seen the lowest growth.
GAS Revenue (TTM) data by YCharts
When looking at earnings, the following three stocks have seen a decline in earnings over the past five years. As with revenue, I'm removing these stocks from consideration as a "best dividend grower."
- Entergy - 4.13% loss in earnings over the past five years.
- PPL - 4.61% loss in earnings over the past five years.
- Sempra Energy - 5.82% loss in earnings over the past five years.
Out of the remaining three stocks, AGL Resources has seen the highest earnings growth at 33.30%, while Duke Energy has seen the lowest growth at 26.45%.
GAS EPS Basic (TTM) data by YCharts
In terms of valuation, AGL Resources is trading at a much cheaper valuation based on both trailing P/E ratio:
GAS P/E Ratio (TTM) data by YCharts
And forward P/E ratio compared to both CenterPoint Energy and Duke Energy.
GAS P/E Ratio (Forward) data by YCharts
Out of these stocks, there are several companies that I feel are not appropriate candidates as a "best dividend grower" stock based on low yields, poor dividend growth, and negative revenue/earnings growth over the past five years.
Out of the three eligible stocks (AGL Resources, CenterPoint Energy, and Duke Energy), I believe that AGL Resources is currently the best long-term option for dividend growth investors.
While the company doesn't have the highest yield or the highest dividend growth, it does offer significant value in both categories. In addition, the company has seen the highest revenue and earnings growth over the past five years. Not only does AGL Resources have the most attractive valuation at the moment based on trailing/forward P/E ratios, it also has the lowest payout ratio.
GAS Payout Ratio (TTM) data by YCharts
At the end of last month, AGL Resources reported strong Q2 results, and I believe that this trend will continue. With a strong balance sheet and a steady history of increasing dividends, I feel that long-term investors will be rewarded by investing in this company. As always, I suggest individual investors perform their own research before making any investment decisions.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.