From 62 To 5: Dividend Growth Utilities To Consider
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:
- 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).
- 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).
- Alliant Energy Corp. (LNT)
- CMS Energy Corp. (CMS)
- Edison International (EIX)
- Portland General Electric Co. (POR)
- 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 (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
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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.