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DUK, SO, and PPL: Analyzing Top-Yielding Utility Stocks

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May. 14 2019, Published 8:54 a.m. ET

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Utility stocks (XLU) are currently trading at a dividend yield of 3.1%, higher than broader markets. Regulated utility PPL Corporation (PPL) offers a yield of 5.3%, way higher than the peer average. Its yield represents a spread of ~300 to 350 basis points to the ten-year Treasury yields and broader markets.

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Top-yielding utilities

Southern Company (SO) stock is trading at a dividend yield of 4.7%. Southern Company’s yield has been higher than the peers’ average yield in the last five years. Peer Duke Energy (DUK) yields 4.2%. Southern Company has paid a cash dividend for the last 284 consecutive quarters. Duke Energy has paid dividends for 373 consecutive quarters. The long payment history indicates dividend stability and predictability.

Along with the premium yield, utility stocks expect decent dividend growth for the next few years. They on average intend to grow their per share dividends ~4% to 6% per year, in line with their earnings growth.

Over the past five years, broader utilities have returned 10.6%, including dividends, compounded annually, marginally beating broader markets. Utilities’ domestic focus and regulated operations facilitate stable earnings, which eventually enable stable dividends.

The largest utility by market cap, NextEra Energy (NEE) yields 2.6%, the lowest among top utility stocks. You can compare the dividend profiles of the biggest utility stocks in Market Realist’s Analyzing the Dividend Profiles of the Four Biggest Utilities.

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