PPL (PPL) obtains almost two-thirds of its total revenues from the United Kingdom. Its unique geographical diversification bodes well for its stable earnings growth. PPL’s premium yield of 5.3% looks attractive against peers’ average of 3.2%.
Over the last five years, PPL’s dividend growth has been lower than peers, while its dividend has risen ~2% compounded annually. The Utilities Select Sector SPDR ETF (XLU) has risen ~4%.
The chart above shows PPL’s dividend yield in the last five years against XLU. The steep rise in PPL’s yield during Q4 2017 has resulted in a notable fall in the stock.
Despite its superior yield, PPL has underperformed peers in terms of total returns recently. Over the past 12 months, PPL returned (including dividends) 20%, while the Utilities ETF returned 25% in the same period.
Analysts expect PPL’s dividend to grow ~4% for the next few years and broader utilities to grow ~4%–6% on average. The company expects its EPS growth to be 5%–6% through 2020, well within the peer average range, which could enable targeted dividend growth. PPL has a long dividend payment history. It has paid a dividend in every quarter since 1946.
PPL’s payout ratio was 64% last year, in line with its five-year average. Payout ratios indicate how much of a company’s profit is distributed to shareholders as dividends. Utilities’ average payout ratio is generally 65%–70%.