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NextEra’s Dividends to Grow by 13%, First Energy’s to Remain Flat?

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Dec. 4 2020, Updated 10:53 a.m. ET

Utilities: Forward dividend yields

We will compare forward dividend yields and expected dividend growth rate of utilities in this part. It is interesting to note that NextEra Energy (NEE) is trading at a comparatively lower forward dividend yield than its peers. However, it has the highest expected dividend growth in the next two years.

The chart below shows the comparison of utilities in terms of forward yields and expected dividend growth.

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Forward yields of unregulated players

Unregulated utility players that we are analyzing have an average forward dividend yield of 3.5%. Exelon Corporation (EXC) is trading at a forward yield of 3.5% while Public Service Enterprise (PEG) is at 3.6%, despite much higher dividend growth expectations of PEG compared to EXC.

As we discussed earlier, the forward yield of NextEra stands at 3%, which is lower than other unregulated players. FirstEnergy’s (FE) forward yield is at 4%. Utilities with volatile earnings tend to have higher yields. Investors generally expect higher yields to compensate for higher risks.

Expected dividend growth

With the exception of NextEra, unregulated utility players under our scanner have relatively lower expected dividend growth rates. Public Service Enterprise, Exelon, and FirstEnergy have an expected dividend growth of 5%, 1.6%, and 0%, respectively.

Analysts expect utilities’ dividends to grow by 4%–6% over the next two years. Many utilities (IDU) are targeting same earnings growth in the next couple of years. Regulated utilities are expected to pay increased or stable dividends compared to unregulated ones due to their expected stable earnings.

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