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Inside the Top US Utilities’ Dividend Profiles

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Dividend yields

Among the top three US utility stocks under our consideration, NextEra Energy (NEE) seems to have the most attractive dividend profile, as compared to Duke Energy (DUK) and Southern Company (SO).

NextEra Energy’s dividend yield of 2.7% is much lower than the industry average of 3.1%. In spite of its lower yield, NextEra Energy’s dividend profile is attractive due to its higher dividend growth. By comparison, Southern Company and Duke Energy are currently trading at dividend yields of 4.6% and 4.0%.

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The only red flag in NextEra Energy’s dividend profile is its relatively lower payout ratio. Payout ratio refers to the portion of profits a company gives away as dividends to its shareholders. NextEra Energy’s payout ratio is 55%.

NEE’s heavy capital spending could be one of the main reasons behind its lower payout, which has contributed to a lower yield. The company’s management plans to increase its payout ratio to 65% in the future. Southern Company and Duke Energy’s payout ratios are above 85%.

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Growing dividends

NextEra Energy has managed to grow its dividends by ~10%, compounded annually, over the past five years. By comparison, Southern Company and Duke Energy have increased their dividends by 4%, compounded annually, over the same period. US utilities, on average, have increased their dividends by ~4% over the past five years.

Utilities (XLU) generally aim to grow dividends by 4%–6%. NextEra Energy’s expected dividend growth rate of 10% in the future is double the industry average. You can read more about NextEra Energy’s dividends in NextEra Energy’s Dividend Profile Is Smart despite Lower Yield.

Continue to the next and final part of this series for a look at the analysts’ recommendations.

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