3 Top Utilities For Dividend Growth And Income

Published Sun, 01 May 2016 21:30 CET by DividendYields.org

Generally, Utilities have much higher dividend payout ratios than their blue-chip peers because they have less room for expansion. Therefore, they pay a higher percentage of their retained earnings to their shareholders in the form of cash dividends. Although a payout ratio between 75% - 95% is not considered healthy, utilities tend to have payout ratios in this range as well as high debt-to-equity ratios.
The reason why Utilities maintain such high payout ratio returning value to their shareholders is because they act as a monopolistic authority in their given regions or municipalities, thereby facing a low elasticity of demand. The general notion is that strong competition in Utilities is inefficient.
This article discusses three utilities companies that trade on the NYSE. The average debt-to-equity ratio is 1.38, which is relatively high considering that utilities hold a large amount of debt to cover for infrastructure projects. The average dividend yield is 3.84%, which is over the milestone of 3% with an average payout ratio of 80%. The average dividend per share is $2.68.

Dominion Resources, Sempra Energy and Southern YTD Stock Performance Graph
Dominion Resources (NYSE: D) is a Richmond, Virginia-based utilities company that engages in the production and transportation of energy across the United States. Through Dominion Virginia Power (DVP), Dominion Generation, and Dominion Energy segments, Dominion Resources engages in the transmission and distribution of electricity and gas to 5 million residential, commercial, industrial, and governmental customers in 14 states.

2015 Financial Results
The full year 2015 results for Dominion Resources were remarkable. In spite of the slight decline 5.5% in revenues, the company has delivered strong operating results as follows:

  • Revenues $11.3 billion, down 5.5% YoY from $11.9 billion
  • Operating expenses $8.2 billion, down 16.1% YoY to $9.7 billion
  • Operating income up 30% YoY to $3.5 billion from $2.7 billion
  • Net income up 45% YoY to $1.9 billion from $1.3 billion
  • Operating cash flow up 30.1% YoY to $4.5 billion from $3.4 billion
  • Debt-to-equity ratio 1.86
  • Annualized dividend $2.80 per share, yielding 4.01% at a payout ratio of 88%
  • Dividend growth 2000-2016 8.5% or 0.5% annually

Questar Gas Acquisition
Dominion Resources has acquired Questar, a regulated Salt-Lake City-based integrated natural gas company that engages in the distribution of energy in Utah, Wyoming, and Idaho as well as in the Western region of the United States. The company’s high-performing regulated assets are expected to provide Dominion Resources with enhanced scale and diversification into constructive regulatory authorities. For the coming years, analysts expect an average EPS of $4.00 through 2018 and an average earnings growth of 6.8% through 2020.

Sempra Energy (NYSE: SRE) is a San Diego, California-headquartered energy holding company. Through its San Diego Gas & Electric Company, Southern California Gas Company, Sempra South American Utilities, Sempra Mexico and Sempra Natural Gas segments, the company transmits and distributes electricity and natural gas to residential, commercial, and industrial customers. The Sempra Renewables segment develops solar electric generation facilities in Nevada, Arizona, and California, and wind electric generation facilities in Mexico.

2015 Financial Results & Dividend
Sempra Energy delivered strong financial results in 2015 with a solid growth in operating earnings and strong operating cash flows. The company has achieved a 16.2% YoY increase in net income to $1.3 billion from $1.2 billion in 2014. Operating income was in line 1.7% YoY to $1.84 billion from $1.81 billion, whereas operating expenses were down 9.3% YoY to $8.4 billion from $9.2 billion in 2014. In spite of the slight decline 7.5% YoY in revenues to $10.2 billion from $11.0 billion, the company’s operating cash flow reached $2.9 billion, up 34.4% YoY from 2.2 billion. Since 2000, the company has achieved a 202.0% dividend growth or 12.6% annually. Its current annualized dividend is $3.00 per share, yielding 2.96% at a payout ratio of 56%.

What to expect in 2016
For 2016, Sempra Energy expects strong operating cash flows and a higher dividend. In particular, the company’s dividend is expected to reach $3.54 through 2018, an 18% increase. In addition, Sempra Energy has a good payout ratio, which suggests that the company distributes half of its retained earnings as a dividend. EPS is estimated in the range of $5.22 to $6.25 for the next three years, a maximum increase of 16%.

Name Price ($) 52 wk low 52 wk high 52 wk low % 52 wk high % Market Cap ($ b) P/E D/E Beta Payout Ratio
Dominion Resources 71.74 64.54 76.59 11.16% -6.33% 41.70 21.85 1.86 0.28 88%
Sempra Energy 103.35 86.72 109.08 19.18% -5.25% 25.23 18.85 1.11 0.47 56%
Southern 50.10 41.40 51.59 21.01% -3.26% 45.30 18.92 1.16 0.08 97%

Southern (NYSE: SO) is an Atlanta-Georgia headquartered company that generates, transmits and distribution electricity through coal, nuclear, oil & gas and hydro resources in Georgia, Alabama, Mississippi and Florida. Moreover, Southern Company engages in the construction, acquisition, ownership and management of renewable energy projects and provides digital wireless communications services with various communication options in the Southeast.

Full Year 2015 Results
In 2015, Southern Company sustained operational excellence, delivering strong results. The company increased its reputation as one of the leaders in the industry and has achieved to build an energy portfolio that capitalizes on renewable energy resources. The company’s strong financial performance compared to 2014 is reflected in the following results:

  • Revenues $17.4 billion, down 5.2% YoY from $18.4 billion
  • Operating expenses $13.2 billion, down 10.9% YoY from $14.8 billion
  • Operating income up 17.6% YoY to $4.3 billion from $3.6 billion
  • Net income up 19.2% YoY to $2.4 billion from $2.0 billion
  • Operating cash flow $6.3 billion, up 7.9% YoY from $5.8 billion
  • Debt-to-equity ratio 1.16

Dividend Strength
Southern Company declares an annualized dividend of $2.24 per share, yielding 4.55% at a payout ratio of 97%. The payout ratio is lower than the Electric Utilities Industry payout ratio of 134.8%, yet the dividend yield 4.54% is higher than the average dividend yield 3.96% of the Utilities Industry. The stock’s dividend growth since 2000 is 67.2% or 4.2% annually.

Stock name Dividend Yield
Southern Company 5.27
Dominion Resources 4.05
Sempra Energy 3.00

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