Understanding the Dividend Growth of Top US Utilities
SO’s forward yield and dividend growth
In this part of the series, we’ll discuss Southern Company’s (SO) forward dividend yield. On June 28, 2016, Southern Company was trading at a forward dividend yield of 4.4%. Remember, a company’s forward dividend yield is calculated by dividing its estimated one-year future dividend per share by its market price per share.
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Among SO’s regulated peers, Duke Energy (DUK) is likely to have better dividend growth over the next two years. It has an expected dividend growth of 3.8%. Californian PG&E Corporation (PCG) has an expected dividend growth rate of near 7%, which is the highest among the peer-regulated utilities we have considered in this series.
On the other hand, PPL has the lowest of nearly 2%, which possibly reflects the subdued dividend growth for the next two years, due to its significant exposure to the UK. PPL’s cash flows from the UK are expected to have a negative impact due to the UK’s recent “Brexit” decision to exit the EU.
Meanwhile, many regulated utilities are currently trading in the same forward yield range as Southern, with dividend growth expected to be in the range of 4%–6%, depending on earnings. But given their relatively stable earnings, regulated utilities are expected to pay more stable dividends than unregulated ones. To learn more about forward dividend yields of more mid-sized regulated utilities, check out the series Why Are Midsize Regulated Utilities Outshining the Biggies?
The Vanguard Utilities ETF (VPU) is an electric utility-focused fund that invests nearly 6% of its total holdings in WEC Energy Group. VPU has a focus on regulated utilities, and its top ten holdings account for nearly 50% of its total weight.
In the next part, we’ll discuss institutional investments.