Utilities: Forward Dividend Yield and Dividend Growth



Forward dividend yields

We’ll see a more comprehensive picture of utilities’ forward yields and expected dividend growth in this part. Earlier, we saw that Sempra Energy (SRE) is currently trading at a forward dividend yield of 3%. It expected a dividend growth rate of 7% for the next two years.

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Expected dividend growth

Compared to Sempra, its peer Edison International (EIX) has an expected dividend growth rate of more than 12% for the next two years. Utilities are largely trading at a forward yield of about 4%. Their dividend growth is expected to be 4%–6%. Their earnings are expected to grow in the same range this year. Regulated utilities are expected to pay increased or stable dividends compared to unregulated ones due to their expected stable earnings.

Earnings volatility impacts yields

Renewable giant NextEra Energy (NEE) also has an estimated dividend growth rate of 13%. However, investors should note that NextEra has a much lower forward yield than its peers. Its lower yield can be explained by its strong contribution from regulated operations. Utilities with volatile earnings tend to have higher yields. Entergy (ETR) has significant exposure to wholesale operations. It yields 4.5% with an expected dividend growth rate of near 2%. Investors generally expect higher yields to compensate for higher risks.

We looked at the expected dividend growth for these utilities (VPU). Is this the right time to get into utilities? Let’s see whether these utilities are overvalued or undervalued in the next part.


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