Utilities are known for their reliable dividends and ability to increase their payouts year in and year out. Not even the pandemic could change that.
While the pandemic certainly has posed big challenges to these companies—including customers who have been unable to pay their bills—dividends for the most part have held up well.
The utilities “almost universally have been getting good support from their regulators,” says John Bartlett, a portfolio manager at Reaves Asset Management, which focuses on utilities and infrastructure. “Pretty much from every part of their financials, they’ve done just fine.”
The consensus FactSet 2021 earnings estimate for the Utilities Select Sector SPDR Fund (ticker: XLU) was recently $3.35 a share, down only 2% from $3.42 nearly a year ago. The recent estimate for the fund’s dividends per share was $2.08, versus $2.21 a year ago. The fund’s one-year return is about minus 6%, lagging the S&P 500’s positive return of around 15%.
Barron’s, however, wanted to find some utilities with faster-growing dividends versus peers.
Utility Players
These are among the fastest dividend growers among utilities in the S&P 500, based on payouts they made in recent years.
Data as of Jan. 29; *Adjusted for recent stock split.
Sources: Bloomberg, FactSet, Company Reports
Using FactSet, we started with the 28 utilities in the S&P 500.
The next step was to rank these companies by dividend growth from 2017 through 2019. Past financial performance isn’t always a good predictor of future numbers, but it’s a starting point.
Then we looked for companies whose 2020 dividends were higher—or are expected to be higher—than 2019 levels. Not every company has reported its fourth-quarter 2020 and full-year results yet.
For those companies that met those criteria, the next step was to find ones with estimated dividends that are expected to be higher in 2021 than in 2020.
Barron’s whittled the list down to six companies, eliminating one company whose dividend history was interrupted by a merger and another whose dividend growth slowed considerably in 2019. It is a collection of companies that met those criteria—not necessarily the utilities with the six fastest dividend growth rates.
American Water Works (AWK) is the only water-focused utility in the group. From 2017 through 2019, the company raised its dividend at an annual rate of nearly 10%, from $1.66 a common share to $2.
The company, based in Camden, N.J., and which has not reported its fourth-quarter financial results yet, is expected to have paid out about $2.15 a share last year dividends and is forecast to pay $2.34 this year. The stock was recently yielding 1.4%, the lowest among the six companies in the table.
Atmos Energy (ATO), based in Dallas, is a natural-gas distributor. From 2017 through 2019, it grew its dividend at around an 8% annual clip. It went from $1.80 a share to $2.10 over that period, and in its most recent fiscal year, which ended in September, it paid out $2.30 a share.
CMS Energy (CMS), a Michigan-based company whose holdings include an electric and gas utility, declared a common dividend of $1.33 a share in 2017, followed by $1.43 and $1.53 in the next two years. That’s an annual increase of about 7%.
Consensus estimates put the dividend at around $1.63 this year and $1.74 in 2022, putting it on a similar growth trajectory.
NextEra Energy (NEE) sports one of the lowest yields among utilities at 1.7%, but it offers one of the fastest-growing dividends.
The company’s assets include Florida Power & Light, a regulated utility that is well positioned in a state with attractive population growth. It also operates a large renewable energy business, notably wind and solar power.
From 2017 through 2019, NextEra Energy grew its dividend from $3.93 a share to $5. That’s an annual growth rate of about 13%. Last year, the company paid out $5.60 a share, or $1.40 adjusted for a stock split last fall.
The stock, however, is pricey, trading recently 37.6 times its 2021 profit estimate.
Sempra Energy (SRE) sports a much cheaper valuation, but it’s not growing as fast as NextEra Energy is. Based in San Diego, Sempra has assets that include electric utilities in Southern California.
Still, it raised its common dividend at more than an 8% annual clip from 2017 through 2019 from $3.29 a share to $3.87. It’s expected to have paid out around $4.18 a share in 2020 and is forecast to pay around $4.50 this year.
Write to Lawrence C. Strauss at [email protected]
