Let’s take a look at the top utilities’ dividend profiles in this part. Southern Company (SO) leads the pack and offers a yield of 5.5%. The high yield indicates a yield premium of ~280 basis points compared to the ten-year Treasury yields and almost 350 basis points to the broader markets. Dominion Energy (D) and Duke Energy (DUK) yield 4.6% and 4.2%, respectively. NextEra Energy’s current dividend yield of 2.6% is way below broader utilities’ (XLU) average yield of 3.4%.
Despite the lower yield, NextEra Energy’s dividend profile looks attractive due to its strong dividend growth. In the last five years, NextEra Energy had a dividend growth of ~11% compounded annually—more than double utilities’ average.
NextEra Energy’s management expects dividend growth of 13% per year for the next few years. Dominion Energy also stands tall in terms of the dividend growth. Dominion Energy has raised its dividend ~8% compounded annually in the last five years. NextEra Energy and Dominion Energy’s superior earnings growth in the last few years managed above-average dividend growth.
Southern Company and Duke Energy’s historical dividend growth was 3% during the same period—lower than the industry average. Southern Company has paid equal or increased dividends for 284 consecutive quarters, while Duke Energy has paid dividends to its shareholders for 369 consecutive quarters.
Duke Energy and Southern Company both generate most of their earnings from regulated operations. Regulated operations facilitate stable and predictable earnings, which ultimately bodes well for stable dividends.