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Of 97 Utilities, 27 'Safer' Dividend Payers Were Chasing Pattern Energy's Performance In February



  • Top "safer" dividend utility by net gain, PEGI, showed 40% net as of 2/27/18 per broker targets, while nine trailing averaged 13.32%.
  • 27 of 97 Utilities stocks were deemed "safer" for dividends because they showed positive one-year returns and free cash flow yields greater than dividend yields.
  • Top 10 "safer" Utilities annual dividend yields ranged from 5.28% to 9.22%. Their free cash flow yields ranged from 7.19% to 22.86%.
  • Total annual returns narrowed the "safer" utility list of 97 to 89 by excluding firms reporting negative annual returns.
  • Analyst one-year targets revealed the ten highest yield "safer" utilities were primed to get 24.47% more gains from $5K invested in the lowest-priced five vs. $5K invested in all ten.

Actionable Conclusions (1-10): Analysts Predict Top Ten Utilities 'Safer' Dividend Stocks Netting 3.9% to 40% Gains To February 2019

Seven of ten top dividend Utilities (whose names are shaded in the chart above) were verified as being among the Top ten gainers for the coming year based on analyst 1 year target prices. Thus the yield metrics for this Utilities group, as graded by analyst estimates for January, proved 70% accurate.

Projections based on estimated dividend returns from $1000 invested in the twenty-seven highest yielding 'safer' stocks and their aggregate one year analyst median target prices, as reported by YCharts, created the 2019 data points. Note: one year target prices from one analyst were not applied (n/a). Ten probable profit-generating trades to February, 2019 were:

Pattern Energy Group (PEGI) netted $401.00 based on estimates from fifteen analysts plus dividends less broker fees. The Beta number showed this estimate subject to volatility 8% under the market as a whole.

NRG Yield (NYLD) netted $257.44 based on dividends plus a median target price estimate from five analysts less broker fees. The Beta number showed this estimate subject to volatility 82% more than the market as a whole.

NRG Yield (NYLD.A) netted $218.92 based on dividends plus a median target price estimate from seven analysts less broker fees. A Beta number was not available for NYLD.A.

TerraForm Power (TERP) netted $218.92 based on a median target price estimate from seven analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to volatility 2% less than the market as a whole.

Brookfield Infrastructure (BIP) netted $181.78 based on a median target price estimate from ten analysts, plus projected annual dividends, less broker fees. The Beta number showed this estimate subject to volatility 4% less than the market as a whole.


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Yet always remember: Root for the Underdog!

This article was written by

Fredrik Arnold profile picture

Fredrik Arnold is a retired quality service analyst sharing investment ideas with a primary focus on dividend yields by utilizing free cash flow and one-year total returns as trading indicators.

He is the leader of the investing group The Dividend Dog Catcher, where he shares a minimum of one new dividend stock idea per week with focus on yield or extraordinary financial circumstances. All ideas are archived and available after weekly announcement. Learn more.

Analyst’s Disclosure: I am/we are long CAFD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (6)

408frank profile picture
I agree that Payout Ratios are very important along with free cash flow. I was unable to find the payout ratio on any of your spreadsheets! Did I miss something?
Thanks for sharing your insights with Utilities.
Fredrik Arnold profile picture
On the tinted charts illustrating the article above, the column to the right of the Safety Margin column lists the Cash Dividend Payout Ratio (annual) expressed as a percentage for each entry.
CAFD is a company that I have myself and feel that although it has risks involved it is a viable Enterprise worth a Speculative sized position (small). A company such as GPP on the other hand is a pure Yieldco and isn't viable as a standalone and has a weak parent. That type of investment, (GPP) is much like investing in the water connections and recycling systems of 1 particular car wash! Just how does one value something like, as an asset or Enterprise Value? If you go by GPP's yield history its GREAT. However, a closer look at its assets are sobering and offer little in the way of standalone investor value. After all, the original "Ponzi" from the "Ponzi scheme" paid dividends above the market but it wasn't based on a business model that could generate Earnings or returns for its investors.
The Name of the game in long-term investing is "Total Shareholder Returns". With utilities current yields can be misleading because they are frequently attached to "Falling Knife" investments whose yield is high due to its recent share price collapse which oftenh signals an imminent 'Dividend Cut' or at best an uncertain future. In these cases, size and business models matter which explains why a 'PPL' or 'Southern Company' with their mostly regulated and diversified long term presence is indicative of a possible bargain, though NOT without risks. Those risks may come in the form of the "dilution" through large equity offerings, but the combined discount and overall soundness of those high yielding Large-Cap Utilities (~5.5% yield) usually means a lower than average CAGR, going forward, and a lower rate of dividend and share price increases are likely versus a Dominion, AEP, Next Era Energy, or Con Edison. Initially, Southern and PPL will pay higher yields, but their comparative "Yield-On-Cost" would tell a different story. The same is true of the low yielding Water Utilities such as, American States Water, AWR, Aqua America, WTR, and American Water Works, AWK. Owning all of the above, its become obvious that the Water Utilities have low current yields due to rapidly increasing share prices and, surprisingly, a Higher "Avg. Yield-on-Cost" and "Total Shareholder Returns" that most of the much higher yielding electric and multiline utilities with one exception: Next Era Energy. Oddly, Next Era Energy pays among the very lowest present dividend yields despite increasing at over ~10% annually and 13+ % over the past 3 years. That however is due to the high CAGR in its share price, that's doubled over the past 5 years while Southern and PPL's share prices have actually declined over the period.

As someone whose household income is largely derived from dividends from a long term trust, that I administrate, I am painfully aware of these realities and have, on occasion, paid very high prices for very impressive dividends/distributions.

Is it a bad idea to add PPL or Southern Company at current share prices with such attractive yields?

For you, yes, but they'll likely continue paying high yields-on-cost for current buyers as their share prices decline. PPL is sounder than Southern, especially at current share prices and pays a higher yield [Almost 6%], but Mr. Market has a myriad of fears regarding the impact of "Brexit", "Potential Nationalization", "GBP weakness", and continued interest rate hikes. Add to that, the $1 Billion in additional equities the company plans on issuing to avoid having credit rating issues due to its high leveraging.

Southern Company, which we own about 11x as much of in net asset value [as of today] versus PPL has many sound segments in its overall Holding Company. However, the lack of Net Earnings and the tarnished future promise caused by the expensive failure of Coal Gasification, at Kemper as well as the cost overruns at its Vogtle Nuclear plant has caused issues that will impend the "Total Shareowner Returns" for years to come. In the meantime, companies, such as "Dominion Energy" and "Next Era Energy" have a lot of upside potential, a lot of dividend growth going forward, and are better positioned for the future Energy environment. Dominion is selling for a huge discount, exaggerated since the "Scana" acquisition announcement but Next Era is the dominant Energy player in the Utility sector with Renewables in the largest measure in the U.S., both through Regulated Operations, FPL, and Unregulated, throughout the country.

At ~$72 Dominion is really priced to low to pass, as it is worth about 1/2 of NEE, which is currently trading around $155 when I checked last. Both are long term buy and hold "SWAN" candidates.
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