These Factors Could Affect PPL’s Dividend Growth
Factors that could affect PPL’s dividends
PPL (PPL) surprised Wall Street recently with better-than-expected 4Q16 earnings. The UK’s Brexit referendum was expected to impact its cash flows negatively due to the company’s significant operations in the UK. However, the company’s hedging strategies and its utilities’ strong performance boosted its quarterly earnings.
More than half of PPL’s business comes from its UK operations, while the rest comes from Kentucky and Pennsylvania. Its transmission and distribution utilities operating in both these states are expected to accelerate its earnings growth due to increased capital spending.
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PPL’s UK presence: A competitive advantage
PPL Corporation’s geographic diversification could present a strategic advantage for it once the Brexit blues are over and the British pound stabilizes. The right mix of UK and US operations offers PPL regulatory as well as customer diversification. A healthy regulatory framework in the UK provides a higher return on equity to PPL than the US average.
However, in comparison, PPL’s dividends profile may not be the best in the industry. In a previous article, we saw that many utilities are expected to have higher dividend growth in the next few years.
On the flipside, weakness in utilities (XLU) may again become apparent when the Fed starts raising rates again. In fact, the possibility of a rate hike in the Fed’s upcoming meeting in March is rising significantly. Investors could turn to bonds if utilities really don’t seem appealing. However, it seems unlikely that utilities’ current 100–130 basis point premium to Treasuries will be significantly hampered.
Read Which Utility Will Pay Higher Dividends in 2017? for more information. You can also read Hawkish Fed or Helpful Weather: What Will Drive Utilities in 2017? to learn how utilities might be positioned in 2017.