From 62 To 5: Dividend Growth Utilities To Consider

May 07, 2018 9:53 AM ETBKH, CMS, DTE, EIX, LNT, POR, SRE, WEC, AES, ALE, AEP, AWR, AWK, APU, WTRG, ARTNA, ATO, AVA, BIP, BEP, CWT, CNP, CPK, CTWS, ED, D, DUK, EE-OLD, ES, GXP, IDA, MDU, MGEE, MSEX, NFG, NJR, NEE, NI, NWN, NWE, CWEN, OGE, OGS, OTTR, PEGI, PNW, PNM, PPL, PEG, RGCO, SCG, SJW, SJI, SO, SWX, SR, UGI, VVC, WR, WGL, XEL, YORW, BEP.UN:CA, BIP.UN:CA21 Comments

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

This article was written by

I'm a Canadian investor focusing on dividend growth investing as a way to reach early retirement.

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.

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