Chart in Focus: Utilities and Dividend Growth Potential
Expected dividend growth
During the last few years, US utilities (XLU) have been improving their business mixes in an effort to improve their earnings stability. These utilities expect their per-share earnings to grow 4%–6% annually for the next few years. Their per-share dividends are expected to increase by similar levels.
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Above-average dividend growth
AES Corporation (AES) and Dominion Energy (D) dominate the chart above, which illustrates expected dividend growth. AES Corporation’s management expects its per-share dividends to grow 8%–10% annually going forward. AES is the most geographically diversified utility in the S&P 500 Utilities Index, with operations spanning ~17 countries.
Continued strength in the US dollar could dent AES’s earnings going forward, as overseas operations comprise nearly 70% of its earnings. Its large exposure to competitive operations gives it a relatively risky investment profile compared to its peers.
Dominion Energy’s business mix includes electric, gas, and midstream, which makes it well-placed for future earnings growth relative to its peers. Dominion Energy’s expected higher earnings growth could facilitate higher dividend growth going forward.