Earnings and dividend growth for PPL (PPL) in the next few years looks achievable considering its expected rate base growth. It intends to invest around ~$3.0 billion per year, which could translate to rate base growth of 5.4% through 2022. PPL generates more than 60% of its revenues from the United Kingdom.
Southern Company (SO) expects to increase its EPS by 4%–6% annually for the next few years, which is in line with the industry average. Southern Company’s stock performance has been negatively affected by power plant issues in the last few years. Because of its poor stock performance, its total returns lagged behind its peers despite stable dividends. However, these issues are not expected to significantly impact Southern Company’s long-term earnings growth.
The chart above shows the comparative stock price movement of both Southern Company and PPL along with utilities at large and broader markets in the last five years. SO and PPL notably underperformed peer utilities (XLU).
In the past 12 months, Southern Company returned -6% including dividends, while PPL returned -20%. In the past five years, SO returned approximately 6% and PPL also returned 6% compounded annually. Total returns of utilities at large came in at 2% in the past 12 months, while in the last five years, they returned 11% compounded annually.
Trade war fears continue to loom, which could turn the market defensive again, a potential gain for utilities (XLU) (VPU). However, the Fed’s hawkish stance on rate hikes this year for the utility sector remains a threat. Rising rates result in higher debt servicing expense for utilities, which dents their profitability.