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What Could Drive PPL’s Dividend Growth?

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What are the next utility sector dividend growers?

In this series, we’ll discuss the rest of the top S&P 500 utility sector dividend growers. The top dividend growers are listed in the chart below. The chart also shows a comparison with the broad-based indexes (SPX-INDEX) (DJIA-INDEX) (COMP-INDEX). We’ll start with PPL Corporation (PPL).

 

What is the dividend outlook?

PPL’s present dividend yield of 5% has been driven by flat dividend growth and price loss. Dividends grew 1% and 4% in 2016 and 2017, respectively. A price loss in 2017 further drove the dividend growth in that year. The dividend is projected to see flat growth in 2018.

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What is the projected dividend payout?

The company had a dividend payout of 62% in 2016. It has a projected dividend payout of 72% and 68% in 2017 and 2018, respectively. The company has been unable to generate positive free cash flow balance due to high capital expenditure relative to its operating cash flow.

What led to the operating revenue decline?

Operating revenue shed 2% in 2016 and 3% in 9M17. The UK Regulated segment drove the decline in 2016 offset by Kentucky Regulated and Pennsylvania Regulated segments. UK operating revenues recorded a decline in 2016 offset by domestic electric and gas revenues. UK Regulated and Kentucky Regulated drove the decline in 9M17, while Pennsylvania Regulated recorded flat growth.

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What led to the EPS decline?

Fuel and energy purchase cost decreased 13% in 2016 and 6% in 9M17. As a result, gross profit expanded 1% in 2016 and shed 2% in 9M17. Operating expenses decreased 5% and 2% in 2016 and 9M17, respectively. This led to 8% growth in 2016 operating income and a 3% decline in 9M17.

Other net expenses fell 35% in 2016 before increasing 134% in 9M17, which was due to other expense in 9M17. Net income rose 12% in 2016 followed by an 8% fall in 9M17. EPS grew 11% in 2016 and dropped 9% in 9M17.

What will drive the future operating revenue and EPS?

PPL plans to invest more than $16 billion in its energy infrastructure in the next three years.

Operating revenue has been projected to be flat in 2017 and grow 5% in 2018. EPS is expected to fall 11% in 2017 and 7% in 2018.

A PE of 11.3x and a dividend yield of 5.1% compares to a sector average PE and a dividend yield of 21x and 3.8%, respectively.

Dividend ETFs with exposure to PPL:

The Global X SuperDividend U.S. ETF (DIV) has a PE of 15x and a dividend yield of 6.1%. The WisdomTree US Dividend ex-Financials Fund (DTN) has a PE of 19.6x and a dividend yield of 3.1%.

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