From 62 To 5: Dividend Growth Utilities To Consider

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Includes: AEP, AES, ALE, APU, ARTNA, ATO, AVA, AWK, AWR, BEP, BIP, BKH, CMS, CNP, CPK, CTWS, CWEN, CWT, D, DTE, DUK, ED, EE, EIX, ES, GXP, IDA, LNT, MDU, MGEE, MSEX, NEE, NFG, NI, NJR, NWE, NWN, OGE, OGS, OTTR, PEG, PEGI, PNM, PNW, POR, PPL, RGCO, SCG, SJI, SJW, SO, SR, SRE, SWX, UGI, VVC, WEC, WGL, WR, WTR, XEL, YORW
by: Dividend Growth Investing & Retirement
Summary

A screen for dividend growth utility stocks using a variety of metrics including financial strength and dividend growth estimates.

Just 5 out of 62 utility companies passed the dividend screen.

Full table and excel file available for the 62 utility stocks that were screened.

Utility companies typically have a high dividend yield and make good dividend growth candidates because they operate in a regulatory environment which limits competition and keeps earnings relatively predictable. In this article, we'll go over all of the utilities in the US Dividend Champions list and apply a dividend growth screen to try and find high-quality companies for further consideration.

I used the following requirements:

  1. Dividend Metrics:
    • Used the April 30, 2018 version of the US Dividend Champions list to filter all utility stocks with a dividend streak of 10 or more years. This list is an invaluable resource for dividend growth investors, thank you David Fish.
    • A reasonably high dividend yield of 2.85% or higher (Roughly 1.5 times the S&P 500 yield).
    • Estimated future dividend growth of 6% or more. I used ValueLine's estimated annual dividend growth rates for the next 3-5 years for my estimates.
    • A reasonable payout ratio of 70% or less based on the next 12 months EPS estimates (Dividend / N12 EPS).
  2. Quality Metrics:
    • ValueLine financial strength of B+ or better.
    • S&P credit rating of BBB or higher.
    • Moody's credit rating of Baa2 or higher.
    • MorningStar moat rating of narrow or wide.

The Results

So out of the 62 utility stocks in the US Dividend Champions list, only five passed my dividend and quality metrics screen. (FYI - The full table is at the end of this article).

  1. Alliant Energy Corp. (LNT)
  2. CMS Energy Corp. (CMS)
  3. Edison International (EIX)
  4. Portland General Electric Co. (POR)
  5. Sempra Energy (SRE)

I'm not that familiar with these five companies, but at first glance, I was most interested in Edison International because of their higher dividend yield and high estimated dividend growth. I was a little disappointed that none of the companies currently yield over 4% as that's usually what I'm aiming for, especially in the utility sector.

Alliant Energy Corp.

Alliant provides customers in the Midwest with regulated electric and natural gas services. They plan to shift their supply mix towards more renewables and less nuclear and coal over time.

Source: April 6, 2018, Wells Fargo Equity Investor Meetings Presentation

They've been paying dividends consistently since 1946 and currently have a dividend streak of 15 years. As of May 3rd, their dividend yield was 3.1%. Five and ten-year dividend growth rates are 7.0% and 7.1% respectively, and most recent dividend increase was 6.4%. Value Line is estimating 6% annual dividend growth over the next 3-5 years, which looks reasonable based on their prior dividend growth history.

Alliant currently trades above MorningStar's fair value estimate of $38, so I'd wait for a price drop before looking into the company more.

CMS Energy Corp.

CMS Energy Corp is primarily an electric and natural gas utility serving Michigan residents. You can see from their supply mix below that have 26% supply from coal.

Source: May 2018 Investor Presentation

I try and avoid coal where I can, so I likely won't be investing. Their current plan is to remove coal as a supply source completely by 2040.

They have a dividend streak of 12 years. As of May 3rd, their dividend yield was 3.1%. Their five and ten-year dividend growth rates are 6.7% and 20.9% respectively. Value Line is estimating 7% annual dividend growth over the next 3-5 years which appears reasonable based on their dividend growth history and the fact that the company is projecting 6-8% growth in 2018 and on.

CMS currently trades above MorningStar's fair value estimate of $40.

Edison International

Edison International is an electric utility operating in California. They have a dividend streak of 15 years. As of May 3rd, their dividend yield was 3.8%. Their five and ten-year dividend growth rates are 10.8% and 6.5% respectively. Value Line is estimating 8% annual dividend growth over the next 3-5 years.

Currently there is a risk that Edison could be on the hook for billions of dollars in damages caused by wildfires from a year ago in California. Make sure you look into this further if you are planning on investing in this utility.

Edison International currently around MorningStar's fair value estimate of $66. Morningstar's five-star price is $52.80 which Edison is about 20% above right now. With the uncertainty due to the wildfires, it might be prudent to wait for a better entry point.

Portland General Electric Co.

Portland General Electric Co. is an electric utility operating in Northwest Oregon. They have four main power sources as shown below.

Source: April 2018 Investor Presentation

They have a dividend streak of 13 years and as of May 3rd, their dividend yield was 3.4%. Their five and ten-year dividend growth rates are low at 4.3% and 3.7% respectively. Despite the low 5 and 10 dividend growth rates they appear to be improving the dividend growth as their most recent dividend increase was 6.6%. The company is projecting future dividend growth in the 5-7% range and Value Line is estimating 6% annual dividend growth over the next 3-5 years.

Sempra Energy

Sempra Energy is a natural gas utility based in San Diego, California. They have a dividend streak of 15 years. As of May 3rd, their dividend yield was 3.2% and their five and ten-year dividend growth rates are 7.2% and 10.1% respectively. Value Line is estimating 8.5% annual dividend growth over the next 3-5 years.

They are currently trading around MorningStar's fair value estimate of $114. I plan to investigate this company further when the yield starts to get closer to 4%.

Close Calls

Before I share the full table, I wanted to mention a few things I noticed.

Black Hills Corp (BKH) wasn't rated by MorningStar but passed all the other screening criteria. Black Hills has a dividend streak of 47 years, yields 3.3%, and 5 and 10-year dividend growth rates of 4.1% and 2.8%. Despite the low 5 and 10-year dividend growth rates, their most recent dividend increase was a more respectable 6.7% and Value Line is estimating dividend growth of 6% over the next 3-5 years.

DTE Energy Company (DTE) passed all the screening criteria except that their dividend streak was 9 years.

WEC Energy Group Inc. (WEC) passed all the screening criteria except that its payout ratio was slightly above 70% at 73%.

Results Table

Here is the full table of all 62 companies for you to peruse. For those excel nerds like myself, you can get the spreadsheet on my website here.

Company Name Ticker Symbol May 3, 2018 Price Dividend Streak Dividend Yield (May 3rd) VL 3-5 year Dividend Growth Estimate Analyst Forecast of EPS - N12 N12 Payout Ratio ValueLine (VL) Financial Strength S&P Credit Rating Moody's Credit Rating MorningStar (NYSE:MS) Moat MS Fair Value Estimate MS 5 Star Price % off FV % off 5 Star Price Dividend EPS Normalized Normalized TTM EPS Payout Ratio Industry
AES Corp. AES $12.29 7 4.23% 14.00% $1.19 43.57% B BB+ Ba2 None $12.00 $7.20 2.42% 70.69% $0.52 -$ 0.13 -405.96% Utility-Electric
Allete Inc. ALE $78.79 8 2.84% 4.50% $3.47 64.55% A BBB+ A3 NA NA NA NA NA $2.24 $ 3.18 70.47% Utility-Electric/Gas
Alliant Energy Corp. LNT $43.23 15 3.10% 6.00% $2.10 63.88% A A- Baa1 Narrow $38.00 $30.40 13.76% 42.20% $1.34 $ 2.00 66.95% Utility-Electric/Gas
American Electric Power Co. AEP $69.24 8 3.58% 5.00% $3.99 62.23% A+ A- Baa1 Narrow $68.00 $54.40 1.82% 27.28% $2.48 $ 3.65 67.98% Utility-Electric
American States Water AWR $56.12 63 1.82% 7.50% $1.79 56.94% A A+ NA NA NA NA NA NA $1.02 $ 1.73 59.02% Utility-Water
American Water Works AWK $85.29 11 2.13% 10.00% $3.29 55.34% B+ A A3 Narrow $80.00 $64.00 6.61% 33.27% $1.82 $ 3.01 60.37% Utility-Water
AmeriGas Partners LP APU $41.47 13 9.16% 2.50% $2.76 137.67% B+ NA Ba2 Narrow $46.00 $32.20 -9.85% 28.79% $3.80 $ 1.71 222.38% MLP-Propane
Aqua America Inc. WTR $35.18 25 2.33% 9.00% $1.40 58.43% A A+ NA NA NA NA NA NA $0.82 $ 1.36 60.27% Utility-Water
Artesian Resources ARTNA $38.30 20 2.46% 0.00% NA TTM Used B+ NA NA NA NA NA NA NA $0.94 $ 4.03 23.32% Utility-Water
Atmos Energy ATO $88.06 34 2.20% 7.00% $3.91 49.64% A+ A A2 Narrow $83.00 $66.40 6.10% 32.62% $1.94 $ 3.65 53.18% Utility-Gas
Avista Corp. AVA $51.81 16 2.88% 4.00% $2.21 67.57% A BBB Baa1 NA NA NA NA NA $1.49 $ 1.91 77.81% Utility-Electric/Gas
Black Hills Corp. BKH $57.67 47 3.29% 6.00% $3.39 55.99% A BBB Baa2 NA NA NA NA NA $1.90 $ 9.16 20.75% Utility-Electric
Brookfield Infrastructure Partners LP BIP $39.94 11 4.71% 8.50% $1.73 108.86% B++ BBB+ NA NA NA NA NA NA $1.88 $ 0.04 4480.60% MLP-Energy/Timber
Brookfield Renewable Partners LP BEP $30.71 9 6.38% NA $0.54 359.96% NA BBB+ NA NA NA NA NA NA $1.96 -$ 0.18 -1090.22% MLP-Energy
California Water Service CWT $40.00 51 1.88% 6.50% $1.51 49.53% B++ A+ NA NA NA NA NA NA $0.75 $ 3.65 20.53% Utility-Water
CenterPoint Energy CNP $25.46 13 4.36% 2.00% $1.56 71.23% B+ A- Baa1 Narrow $28.00 $19.60 -9.07% 29.90% $1.11 $ 1.55 71.53% Utility-Electric/Gas
Chesapeake Utilities CPK $75.60 14 1.72% 5.00% $3.46 37.54% B++ NA NA NA NA NA NA NA $1.30 $ 2.66 48.85% Utility-Gas
CMS Energy Corp. CMS $46.50 12 3.08% 7.00% $2.30 62.20% B++ BBB+ Baa1 Narrow $40.00 $32.00 16.25% 45.31% $1.43 $ 2.15 66.60% Utility-Electric/Gas
Connecticut Water Service CTWS $68.76 48 1.73% 5.50% $2.30 51.74% B+ A NA NA NA NA NA NA $1.19 $ 4.46 26.65% Utility-Water
Consolidated Edison ED $79.00 44 3.62% 3.50% $4.19 68.25% A+ A- A3 None $75.00 $60.00 5.33% 31.67% $2.86 $ 22.07 12.96% Utility-Electric
Dominion Energy Inc. D $65.53 15 5.10% 8.50% $4.09 81.62% B++ BBB+ Baa2 Wide $84.00 $67.20 -21.99% -2.49% $3.34 $ 3.34 99.89% Utility-Electric/Gas
DTE Energy Company DTE $104.60 9 3.37% 6.50% $5.73 61.56% B++ BBB+ Baa1 Narrow $97.00 $67.90 7.84% 54.05% $3.53 $ 7.12 49.60% Utility-Electric
Duke Energy Corp. DUK $79.76 13 4.46% 4.50% $4.79 74.33% A A- Baa1 Narrow $87.00 $69.60 -8.32% 14.60% $3.56 $ 4.04 88.08% Utility-Electric/Gas
Edison International EIX $63.22 15 3.83% 8.00% $4.21 57.43% A BBB+ A3 Narrow $66.00 $52.80 -4.21% 19.73% $2.42 $ 4.58 52.89% Utility-Electric
El Paso Electric Co. EE $54.25 7 2.47% 7.00% $2.49 53.82% B++ BBB Baa1 NA NA NA NA NA $1.34 $ 10.44 12.83% Utility-Electric
Eversource Energy ES $58.87 20 3.43% 6.00% $3.25 62.22% A A+ Baa1 None $53.00 $42.40 11.08% 38.84% $2.02 $ 3.06 65.93% Utility-Electric/Gas
Great Plains Energy Inc. GXP $32.71 7 3.36% 5.50% $1.64 67.07% B+ BBB+ Baa2 None $30.00 $24.00 9.03% 36.29% $1.10 $ 0.29 382.39% Utility-Electric
Idacorp Inc. IDA $95.15 6 2.48% 6.50% $4.23 55.79% A BBB Baa1 NA NA NA NA NA $2.36 $ 4.35 54.27% Utility-Electric
MDU Resources MDU $28.90 27 2.73% 2.00% $1.41 56.10% A BBB+ NA NA NA NA NA NA $0.79 $ 1.29 61.40% Utility-Gas
MGE Energy Inc. MGEE $58.85 42 2.19% 5.00% NA TTM Used A AA- A1 NA NA NA NA NA $1.29 $ 2.19 58.87% Utility-Electric/Gas
Middlesex Water Co. MSEX $41.70 45 2.15% 5.00% $1.55 57.74% B++ A NA NA NA NA NA NA $0.90 $ 1.34 66.75% Utility-Water
National Fuel Gas NFG $51.38 47 3.23% 4.00% $3.30 50.29% B+ BBB Baa3 NA NA NA NA NA $1.66 $ 3.28 50.67% Utility-Gas
New Jersey Resources NJR $41.70 22 2.61% 4.00% $1.71 63.84% A+ NA Aa2 Narrow $31.00 $24.80 34.52% 68.15% $1.09 $ 1.54 70.95% Utility-Gas
NextEra Energy Inc. NEE $163.06 24 2.72% 9.50% $7.45 59.57% A+ A- NA Narrow $150.00 $120.00 8.71% 35.88% $4.44 $ 6.46 68.69% Utility-Electric/Gas
NiSource Inc. NI $25.38 7 3.07% 9.00% $1.35 57.70% B+ BBB+ Baa2 Narrow $26.00 $20.80 -2.38% 22.02% $0.78 $ 0.62 125.14% Utility-Electric/Gas
Northwest Natural Gas NWN $61.85 62 3.06% 2.50% $2.24 84.51% A A+ A3 NA NA NA NA NA $1.89 $ 3.17 59.55% Utility-Gas
NorthWestern Corp. NWE $55.38 14 3.97% 4.50% $3.42 64.42% B+ BBB Baa1 NA NA NA NA NA $2.20 $ 10.05 21.90% Utility-Electric/Gas
NRG Yield Inc. NYLD $18.10 6 6.59% NA NA NA NA BB Ba2 NA NA NA NA NA $1.19 NA NA Utility-Electric
OGE Energy Corp. OGE $33.74 11 3.94% 8.00% $2.04 65.35% A A- A3 None $33.00 $23.10 2.24% 46.06% $1.33 $ 1.91 69.62% Utility-Electric/Gas
ONE Gas Inc. OGS $73.64 5 2.50% 12.00% $3.11 59.17% B++ A A2 NA NA NA NA NA $1.84 $ 3.16 58.20% Utility-Gas
Otter Tail Corp. OTTR $44.10 5 3.04% 3.50% $1.93 69.61% A BBB A3 NA NA NA NA NA $1.34 $ 1.87 71.61% Utility-Electric
Pattern Energy Group Inc. PEGI $17.86 5 9.45% 4.50% $0.53 318.73% B+ BB- Ba3 NA NA NA NA NA $1.69 -$ 0.14 -1239.31% Utility-Diversified
Pinnacle West Capital Corp. PNW $79.81 6 3.48% 5.50% $4.58 60.73% A+ A- A3 Narrow $80.00 $64.00 -0.24% 24.70% $2.78 $ 4.45 62.45% Utility-Electric
PNM Resources Inc. PNM $39.75 7 2.67% 7.00% $1.87 56.75% B+ BBB+ Baa3 NA NA NA NA NA $1.06 $ 1.58 67.02% Utility-Electric
Portland General Electric Co. POR $42.47 13 3.41% 6.00% $2.29 63.22% B++ BBB A3 Narrow $36.00 $28.80 17.97% 47.47% $1.45 $ 2.31 62.80% Utility-Electric
PPL Corp. PPL $28.65 17 5.72% 3.50% $2.32 70.77% B++ A- Baa2 Narrow $35.00 $28.00 -18.14% 2.32% $1.64 $ 2.11 77.90% Utility-Electric
Public Service Enterprise Group Inc. PEG $51.87 7 3.47% 5.00% $3.32 54.23% A++ BBB+ Baa1 Narrow $43.00 $30.10 20.63% 72.33% $1.80 $ 1.66 108.19% Utility-Electric/Gas
RGC Resources Inc. RGCO $25.67 15 2.42% 0.00% $0.99 62.63% B+ NA NA NA NA NA NA NA $0.62 $ 0.86 72.14% Utility-Gas
SCANA Corp. SCG $36.77 17 6.66% -5.50% $3.23 75.88% B+ BBB Ba1 Narrow $57.00 $39.90 -35.49% -7.84% $2.45 $ 4.38 55.88% Utility-Electric/Gas
Sempra Energy SRE $111.41 15 3.21% 8.50% $5.53 64.75% A BBB+ Baa1 Narrow $114.00 $91.20 -2.27% 22.16% $3.58 $ 5.71 62.65% Utility-Gas
SJW Corp. SJW $61.65 51 1.82% 8.50% $2.27 49.34% B+ NA NA NA NA NA NA NA $1.12 $ 2.36 47.48% Utility-Water
South Jersey Industries SJI $30.97 19 3.62% 4.00% $1.55 72.41% A BBB+ A2 NA NA NA NA NA $1.12 $ 0.53 209.77% Utility-Gas
Southern Company SO $46.26 18 5.19% 3.50% $2.96 81.03% A NA Baa2 Narrow $51.00 $40.80 -9.29% 13.38% $2.40 $ 2.64 91.06% Utility-Electric
Southwest Gas Corp. SWX $73.31 12 2.84% 7.00% $3.68 56.45% B++ BBB+ NA NA NA NA NA NA $2.08 $ 3.79 54.83% Utility-Gas
Spire Inc. SR $72.45 15 3.11% 4.00% $3.87 58.17% B++ A- NA NA NA NA NA NA $2.25 $ 3.44 65.33% Utility-Gas
UGI Corp. UGI $48.66 31 2.14% 3.00% $2.71 38.41% B++ NA NA NA NA NA NA NA $1.04 $ 2.75 37.75% Utility-Electric/Gas
Vectren Corp. VVC $70.22 58 2.56% 6.50% $2.83 63.55% A A- NA NA NA NA NA NA $1.80 $ 2.06 87.17% Utility-Electric/Gas
WEC Energy Group Inc. WEC $64.50 15 3.43% 6.00% $3.04 72.66% A+ A- A3 Narrow $61.00 $48.80 5.74% 32.17% $2.21 $ 3.15 70.27% Utility-Electric/Gas
Westar Energy WR $54.05 13 2.96% 4.00% $2.57 62.30% A BBB+ Baa1 Narrow $47.00 $37.60 15.00% 43.75% $1.60 $ 2.30 69.68% Utility-Electric
WGL Holdings Inc. WGL $86.14 43 2.39% 2.50% $3.79 54.43% A A A3 Narrow $88.00 $70.40 -2.11% 22.36% $2.06 $ 3.76 54.86% Utility-Gas
Xcel Energy XEL $46.48 15 3.27% 5.50% $2.45 62.16% A+ A- A3 Narrow $40.00 $32.00 16.20% 45.25% $1.52 $ 2.30 66.16% Utility-Electric/Gas
York Water Company YORW $31.95 21 2.09% 8.00% $1.01 65.98% B+ A- NA NA NA NA NA NA $0.67 $ 1.01 65.84% Utility-Water

NA - Information not available

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.