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Summary

  • For each S&P 500 industry sector, I will be taking a look at available companies to help determine the best stocks for income investors.
  • In determining the best stocks per industry, I will be examining both the dividend growth and dividend yields of the stocks.
  • Out of this group of regulated electric stocks, I believe that Wisconsin Energy is currently the best option dividend growth option for long-term investors.

Overview

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 26, I will be taking a look at Regulated Electric stocks within the Utilities industry. These stocks include:

  • Ameren (NYSE:AEE)
  • CMS Energy (NYSE:CMS)
  • Consolidated Edison (NYSE:ED)
  • DTE Energy Holding (NYSE:DTE)
  • Edison International (NYSE:EIX)
  • NextEra Energy (NYSE:NEE)
  • Northeast Utilities Systems (NYSE:NU)
  • PG&E (NYSE:PCG)
  • Pepco Holdings (NYSE:POM)
  • Pinnacle West Capital (NYSE:PNW)
  • SCANA Corporation (NYSE:SCG)
  • Southern Company (NYSE:SO)
  • TECO Energy (NYSE:TE)
  • Wisconsin Energy (NYSE:WEC)
  • Xcel Energy (NYSE:XEL)
  • American Electric Power (NYSE:AEP)

When ranking the dividend paying stocks by yield, the order is as follows:

  • TECO Energy - 4.93%
  • Southern - 4.80%
  • Consolidated Edison - 4.41%
  • SCANA - 4.09%
  • Ameren - 4.07%
  • Pinnacle West Capital - 4.05%
  • Pepco Holdings - 3.93% (drop of nearly 2% since start of year)
  • PG&E - 3.85%
  • American Electric Power - 3.78%
  • Xcel Energy - 3.78%
  • CMS Energy - 3.58%
  • DTE Energy Holding - 3.57%
  • Wisconsin Energy - 3.49%
  • Northeast Utilities - 3.46%
  • NextEra Energy - 2.99%
  • Edison International - 2.42%

When ranking them by dividend growth over the past five years, the order is as follows:

  • Wisconsin Energy - 131.10%
  • CMS Energy - 116.00%
  • Northeast Utilities - 65.26%
  • NextEra Energy - 53.44%
  • DTE Energy Holding - 30.19%
  • Xcel Energy - 22.45%
  • American Electric Power - 21.95%
  • Southern - 20.00%
  • Edison International - 14.52%
  • SCANA - 11.70%
  • TECO Energy - 10.00%
  • PG&E - 8.33%
  • Pinnacle West Capital - 8.10%
  • Consolidated Edison - 6.78%
  • Ameren - 3.90%
  • Pepco Holdings - 0%

When looking at dividend growing utility stocks, I am going to disregard stocks that have not averaged at least 8% annual dividend growth over the past five years, as well as stocks that do not yield 3% or better.

This leaves only Wisconsin Energy, CMS Energy, and Northeast Utilities as suitable investments when looking specifically at dividend growth.

In terms of revenue, Northeast Utilities has seen the highest revenue growth over the past five years, while Wisconsin Energy has seen the highest revenue growth over the past ten years.

WEC Revenue (<a href=

WEC Revenue (TTM) data by YCharts

WEC Revenue Chart

WEC Revenue (TTM) data by YCharts

Looking back further, you can see that both Wisconsin Energy and CMS Energy have seen similar revenue growth, while CMS Energy has seen significantly lower long-term growth.

WEC Revenue Chart

WEC Revenue (TTM) data by YCharts

When looking at earnings, you can see that Wisconsin Energy has seen the most consistent and significant growth over both the past five years and longer term.

WEC EPS Basic Chart

WEC EPS Basic (TTM) data by YCharts

WEC EPS Basic Chart

WEC EPS Basic (TTM) data by YCharts

In terms of valuation, both CMS Energy and Wisconsin Energy have similar and lower trailing P/E ratios compared to Northeast Utilities' higher ratio.

WEC PE Ratio Chart

WEC P/E Ratio (TTM) data by YCharts

Conclusion

Out of the stocks in this group, I believe that Wisconsin Energy is currently the best long-term option for dividend growth investors. Not only does the stock offer the highest dividend growth over the past five years, it offers an attractive yield of 3.50%. Wisconsin Energy's dividend growth has not only been substantial, it has been consistent. The company is a "dividend contender" with 11 consecutive years of dividend increases.

In terms of revenue growth, Northeast Utilities has been comparable to Wisconsin Energy, however, Northeast Utilities has seen significantly lower earnings growth. When taking into account Wisconsin Energy's higher earnings growth, more attractive trailing P/E ratio, and lower payout ratio (56% vs. NU's 63%), I feel that Wisconsin Energy is clearly the better investment currently for investors looking for dividend growth.

The company continued to perform well, increasing its EPS from $0.52 to $0.58 in its latest quarter. The recent acquisition of Integrys Energy Group should help ensure continued revenue and earnings growth into the future. The company also stated a planned increase in dividends due to this acquisition with a projected payout target of 65% to 70% of earnings.

I believe that Wisconsin Energy's long-term strategic decisions, including its conversions from propane/coal to natural gas, reduce risks associated with this stock. With a fairly stable and secure high growth dividend, I believe Wisconsin Energy will continue to reward long-term shareholders.

As always, I suggest individual investors perform their own research before making any investment decisions.

Source: The Best Dividend Growers, Part 26: Wisconsin Energy