PPL’s hedge and dividends from the UK
PPL Corporation’s (PPL) management is estimating a significant rise in dividends from its UK operations, from $319 million in 2015 to $400 million in 2016. But to combat currency headwinds, PPL has hedged 93% of this in the current year, 89% in 2017, and 41% of 2018.
As of April 11, 2016, PPL’s average hedge rate was $1.56—well above the current rate of $1.46—with a budgeted open position rate of $1.60. PPL’s unhedged funds from the UK are exposed to currency risk if the British pound does not rally, and this may eat into the dividends from the UK.
Notably, PPL has a higher dividend yield than its regulated peers in the US. As of May 27, 2016, the company was trading at a dividend yield of 4%. Its regulated operations are one of the reasons for such a premium yield.
In 2015, PPL paid dividends of $1.5 per share, which represents an increase of 6.5% year-over-year. Its five-year average annual dividend growth comes to around 1.5%. By comparison, Duke Energy’s (DUK) and Southern Company’s (SO) dividends yield were also close to 4%.
PPL’s spin-off turned the company into a pure-play regulated utility, which bodes well for stable earnings and relatively stable dividends. But the dividend yields of many utility stocks have fallen over the past couple of quarters, and so we may not see a significant uptick in utility stocks this fall.
Now let’s discuss forward dividend yields.