Why SRE, PCG, and EIX Yield Lower
All of the three California utilities offer a dividend yield that’s much lower than the industry average. Currently, the Utilities Select Sector SPDR (XLU) is trading at a dividend yield of 3.5%, while Sempra Energy (SRE) and Edison International (EIX) offer yields below 3%. PG&E (PCG) yields 3.1%.
Some utility giants like Southern Company (SO) and Duke Energy (DUK) yield higher than their California counterparts. Southern Company and Duke Energy trade at 4.7% and 4.2%, respectively. Their yields are higher than the utilities we’re analyzing in this series.
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Sempra Energy is expected to increase its per share dividend nearly 10% annually for the next few years. The only utility that’s targeting dividend growth above this is Florida-based NextEra Energy (NEE). NextEra Energy is aiming for a dividend increase of 12%–14% annually through at least 2018.
In the last five years, Sempra Energy has raised its dividend more than 10% compounded annually. On average, utilities managed to grow their dividends 4.2% compounded annually in the last five years.
According to analysts’ estimates, PG&E—Edison International and Sempra Energy’s bigger peer—aims to grow its per share dividends ~7% for the next few years. It managed to grow its dividends 0.7% compounded annually in the last five years.
Edison International had its five-year dividend growth rate near 8.5% compounded annually.
Sempra Energy’s payout ratio for the last fiscal year was 55%—much lower than the industry average. PG&E’s payout ratio was 69%, while Edison International’s payout ratio was below 50%.
The payout ratio is the portion of profit a company gives away in the form of dividends to its shareholders.
Duke Energy and Southern Company’s payout ratios were 85%–90%.