Let’s take a look at top utilities’ payout ratios. A payout ratio indicates the portion of a company’s profits distributed to shareholders in the form of dividends. Southern Company’s (SO) payout ratio was 76% last year. In the following chart, Southern Company’s average payout ratio beyond 100% shows that it distributed dividends from its reserves more than the profits earned during that period.
Duke Energy (DUK) is among the few utilities with higher payout ratios. Duke Energy’s payout ratio was 83% in 2017—higher than many of its peers. Duke Energy’s five-year average payout ratio is close to 86%. Utilities normally pay a large portion of their earnings in the form of dividends. So, a higher payout ratio isn’t unusual for utilities.
NextEra Energy (NEE), the biggest element of the S&P 500 Utilities Index, had a payout ratio of 59% in 2017—notably lower than its peers (XLU). NextEra Energy’s heavy capital investments might be behind its lower payout ratio and ultimately lower dividend yield. Dominion Energy (D) had a payout ratio of 90%.
Utilities usually pay stable dividends and have slow stock movements. To learn which S&P 500 utility stocks stood out and returned the most in the last five years, read These S&P 500 Utilities Have Delivered the Best Five-Year Returns.