Dividend Growth Ideas: 3 Diversified Utilities

Published Fri, 11 Mar 2016 15:45 CET by DividendYields.org

By including mid-cap companies in your dividend growth portfolio, you actually add value and diversity and you are given the opportunity to realize strong returns over the long-term. Normally, mid-cap companies, which are companies with a market capitalization between $2 and $10 billion, can deliver stronger returns than large or small-cap stocks. This happens because large-caps are already strong and they cannot grow as much as mid- or small-caps. At the same time, mid-caps have already established a growth strategy and they effectively implement it based on the economic cycle.

This article discusses three mid-cap companies that trade in the Diversified Utilities industry. All three stocks have a market value less than $5 billion and an average debt-to-equity ratio of 0.92, which suggests they are financially healthy. Moreover, their average beta is 0.54 and two of them are trading very closely to their 52 week-high. Their average dividend yield is 3.79%, above the milestone of 3%, whereas they all deliver strong dividends and have managed to raise their dividend payments over a period of 15 years.

Avista, Otter Tail and Vectren YoY Stock Performance Graph
Avista (NYSE: AVA) is a Washington-based electric and natural gas utility company that engages in the generation, transmission and distribution of electricity and natural gas in Washington, Idaho, Oregon and Montana. Through its Avista Utilities, and Alaska Electric Light and Power Company, Avista owns hydroelectric projects, thermal generating facilities, and wind generation facilities, supplying retail electric services to about 375,000 customers and retail natural gas services to nearly 335,000 customers. Avista also engages in the sheet metal fabrication of electronic parts, and systems for a range of industries, including construction, telecom, renewable energy, and medical industries.

FY 2015 Results: In spite of the decline in income by 35.8% YoY to $123.2 million from $192.0 million in FY 2014, Avista’s FY 2015 results were in line. Revenues reached $1.46 billion, up 1.6% YoY from $1.43 billion, operating expenses declined 1% YoY to $1.23 billion from $ 1.22 billion and operating income increased 0.2% YoY to $253.2 million from $252.6 million in the same period last year. The company debt-to-equity ratio of 1.00 suggests a low dependence on debt financing and a financially healthy company.

The Alaska Opportunity: Avista capitalizes on business opportunities in Alaska by bringing natural gas to Alaska’s capital, Juneau. Although lower oil prices have raised a red flag making it difficult for customers to justify converting to natural gas, the people of Avista have managed to secure a mechanism to provide the required funds for covering the conversion costs for their customers, thereby making the conversion process much easier.

Strong Dividend Growth: Further than the fact that Avista has managed to deliver in line results in spite of the oil price headwinds, especially in the fourth quarter of 2015, the company has also strong dividend growth. For the period 2000-2016, Avista has a dividend growth of 185.4% or 12.4% annually. The company currently delivers an annualized dividend of $1.37 per share, yielding 3.52% at a payout ratio of 73%.

Otter Tail (Nasdaq: OTTR) is a Minnesota-headquartered electric utility and infrastructure company with operations in the United States, Canada, and Mexico. Through its Electric, Manufacturing, and Plastics segments, Otter Tail engages in the production, transmission, distribution and sale of electric energy in Minnesota, North Dakota, and South Dakota while it also operates as a wholesale participant in the Midcontinent Independent System Operator, Inc. markets. The company also engages in the fabrication and laser cutting of metal components for industrial use as well as thermoformed products for the horticulture industry, among other operations.

Strong Operational FY 0215 Results: Compared to FY 2014 results, Otter Tail has delivered in line results in terms of revenues, but has managed to deliver strong operational results, as follows:

  • Revenues $407.0 million, down 0.1% YoY from $407.6 million
  • Operating expenses, down 4.2% YoY to $670.6 million from $699.7 million
  • Operating income, up 9.7% YoY to $109.2 million from $99.5 million
  • Net income, up 2.8% YoY to $59.3 million from $57.7 million

Dividend Growth: Otter Tail delivers an annualized dividend of $1.25 per share, yielding 4.49% at a payout ratio of 79%. Furthermore, the company’s dividend growth for the period 2000 – 2016 is 22.5% or 1.5% annually, indicating a steady rise in dividend payments.

Future Outlook: For the period 2016 – 2020, Otter Tail plans to make $858 million capital investments by implementing a new business model that combines a focused manufacturing platform with a core utility platform. Furthermore, the Manufacturing and Plastics segments are expected to drive growth at all business levels. Analysts estimate an average EPS of $1.62 through 2018, up 2.53% from current EPS of $1.58.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
Avista 39.07 29.77 39.30 31.24% -0.59% 2.43 20.67 1.00 0.40 73%
Otter Tail 27.94 24.82 33.44 12.57% -16.45% 1.06 17.61 0.74 0.73 79%
Vectren 48.41 37.26 48.00 29.92% 0.85% 3.96 20.07 1.02 0.50 67%

Vectren (NYSE: VVC) is an Indiana-based company that engages in the delivery of energy services to residential, commercial, and industrial customers in Indiana and Ohio. Vectren provides natural gas distribution and transportation services, and electric transmission and distribution services. It also provides underground pipeline construction and repair services as well as sustainable infrastructure. It is estimated that the company supplies natural gas services to about 1.1 million customers in Indiana and Ohio and electric services to nearly 144,000 customers in Indiana.

Strong FY 2015 Results: In spite of the challenging macro environment in gas and oil production and its compressed margins, Vectren has delivered strong FY 2015 results. Revenues were down 11.2% YoY to $1.39 billion from $1.57 billion in FY 2014. However, on the upside, operating expenses declined 9.8% YoY to $2.08 billion from $2.3 billion, operating income increased 15.4% YoY to $361.7 million from $313.5 million and net income increased 18.2% YoY to $197.3 million from $166.9 million in the same period last year.

Dividend Growth: Vectren’s dividend growth for the period 2000-2016 is 64.9% or 4.3% annually, whereas, the company delivers an annualized dividend of $1.60, yielding 3.34% at a payout ratio of 67%.

Future Outlook: Based on Vectren’s demand drivers - energy efficiency and sustainable infrastructure – it is expected that the company will continue to deliver growth as U.S. consumers are continuing to use energy wisely. Vectren will continue to seek out growth opportunities to gain momentum and deliver shareholder value.

Stock name Dividend Yield
Avista 3.69
Otter Tail 2.74
Vectren 2.66

Articles featuring Avista (AVA):

Dividend Champion And Contender Highlights: Week Of May 19

Introduction The Dividend Champions list is a monthly compilation of companies which have consistently increased their annual dividend payouts, and the latest edition may be found here. However, since this list is only produced once per month, the data in it can quickly get out of date. Furthermore, with close to 900 companies on the list, the sheer amount of data can quickly become overwhelming. In this weekly series, I highlight recent and upcoming dividend related activity for companies... Read more

My K.I.S.S. Dividend Growth Portfolio: 1st Quarter 2019 Update

Another good quarter for the stock market. Up over 14% over the past 3 months. And as would be expected during an up market, my dividend growth portfolio trailed the over-all return of the S&P. However, it still performed well, especially in terms of dividends produced and dividend growth. But I will go into the details of my returns and my dividends later. First, Iíll present my portfolio update and my transactions. If you wish to review my previous quarterly updates, you can find them... Read more

12 Upcoming Dividend Increases

Introduction I love stocks that grow their dividends year in and out. You probably do too! If so, you are in the right place. I've created a list of stocks that are increasing their dividend next week. This gives investors an opportunity to start or add to a position to capture an upcoming payment. This can be especially important for retirees who live on dividend checks. This list is a trimmed-down version only covering dividend increases. A full upcoming dividend calendar is available... Read more

Dividend Increases: February 4-8, 2019 (Part 1: Materials, Real Estate, And Utilities Sectors)

Monitoring dividend increases for stocks on my watch is one way to identify candidates for further analysis. Companies that regularly raise dividends show confidence in the potential growth of future earnings. The CCC List provides a good starting point, but I limit the number of stocks to monitor by applying the following screens: Dividend Yield ? 1.0% Market cap ? $1 billion No stocks that are being acquired No Over-The-Counter or Pink Sheet stocks This past week, more than 30... Read more

My K.I.S.S. Dividend Growth Portfolio: 3rd Quarter 2018 Update

Ummm, well, I guess donít have much in the way of interesting or insightful introductory thoughts for this portfolio update. My portfolio just keeps chugging along producing more and more dividends. So letís just proceed with the data. First, if you wish to review my previous quarterly updates, you can find them here: My K.I.S.S. Dividend Portfolio: 3rd Quarter 2017 Update My K.I.S.S. Dividend Portfolio: 4th Quarter 2017 Update My K.I.S.S. Dividend Portfolio: 1st Quarter 2018 Update My... Read more