Why PPL’s Premium Yield Isn’t the Best in the Industry
PPL (PPL), one of the most internationally diversified utilities, declared a dividend of $0.40 per share in 1Q17. Its ex-dividend date is March 8, and dividends will be paid on April 3, 2017. In the previous quarter, PPL paid dividends of $0.38 per share, which implies an annualized increase of 3.9% from last year, which was in line with the industry average.
PPL is one of the highest yielding utilities in the sector at 4.3%. By comparison, the Utilities Select Sector SPDR (XLU) yields nearly 3.5%, while large-cap peers Southern Company (SO) and Duke Energy (DUK) are currently trading at a dividend yield of 4.5% and 4.2%, respectively. The broader market’s (SPX-INDEX) yield is near 2%.
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Attractive dividend yield but dull growth
Though PPL is currently trading at a premium dividend yield, its dividend growth rate in the last few years was on the lower side. In the last five years, its per share dividends increased by only 1.6% compounded annually.
Many utilities showed handsome dividend growth in the last five years. Dominion Resources’ (D) dividends rose 7.3%, while NextEra Energy’s (NEE) dividends rose 9.6% in the last five years.
PPL’s estimated dividend growth in the next couple of years is expected to be better than what its historical trends suggest. It became a pure-play regulated utility by spinning off Talen Energy, its relatively riskier merchant power segment, in 2015. Regulated utilities generally pay stable dividends, largely driven by their stable earnings.
We’ll look at factors affecting PPL’s dividends in detail in a later part of this series.