Utilities run a very boring business. They distribute electricity and natural gas to customers under government-regulated rate structures. There's not a lot of upside in this business (demand and prices are relatively stable), but there's also not much downside. For this reason, utilities generate very stable returns, a large portion of which comes from their high-yield dividend payments.
Investors seeking to add more stability to their investment portfolio should consider purchasing something boring Utility inventory. Black Hills (NYSE: BCH), Edison Consolidated (NYSE: ED)And Duke Energy (NYSE: DOC) They stand out to a few Fool.com contributors as great options for those looking for high-yielding, sustainable dividends.
Black Hills is the mouse that roared
Robin Gregg Brewer (Black Hills): When it comes to utility stocks, Black Hills, with a market cap of $3.9 billion, is a company that often slips under the radar. That's a shame because regulated natural gas and electric utilities are the king of dividends with annual dividend increases for 54 straight years. The average dividend increase over the past three, five, and 10-year periods is around 5%, demonstrating incredible consistency. Meanwhile, the yield is currently around 4.5%, which is toward the upper end of the yield range over the past decade.
In other words, Black Hills appears to be a dividend company that has been shelved. However, there is a good reason for this, because running facilities is a capital-intensive business. A sharp rise in interest rates will increase Black Hills' costs in the future. There's no way around this, while also noting that the tool tends to use more leverage than some of its larger peers.
However, Black Hills customer growth has increased at nearly three times the rate of population growth in the United States. It operates in very attractive markets in Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. This indicates that regulators will, in due course, adjust the company's rate structure to take into account the change in interest rates. If you have the patience to wait for this to happen, you can collect a historically high dividend yield from the rather boring Dividend King.
King of harmony
DiLallo died (Edison Consolidator): Consolidated Edison provides electricity and natural gas to Clients in the New York City metro area. While utilities are a boring business, they generate very Predictable cash flow supported by stable demand and government-regulated price structures. This provides a consolidated Edison company stable Income to pay dividends and invest in maintaining and expanding utility infrastructure.
I hit the main utility Dividend phase earlier this year. It achieved its fiftieth consecutive annual profit increase. This is the longest period of consecutive dividend increases among listed utilities Standard & Poor's 500. It also heralded the company into the elite group of Profits Kings. Consolidated Edison's dividend yield currently yields just under 3.5%, which is more than double the S&P 500's dividend yield (about 1.3% based on dividend payments over the past year).
While the company expects this As its profits continue to increase, growth is likely to moderate. Consolidated Edison plans to target A Profit distribution percentage From 55% to 65% of its adjusted profits to fund higher levels of investment amid the transition to clean energy. This is lower than its previous target of 60% to 70%. It plans to retain more of its profits to fund growth internally. This strategy should enable Consolidated Edison to grow its earnings per share faster in the future. This makes it able to produce higher total returns when dividend income is added to the share price appreciation it should achieve as its earnings grow.
Edison's consolidated dividend should become more sustainable over the long term as it reduces its dividend payout ratio and invests in supporting the clean energy transition. These features make it an attractive option for those looking for very A bankable income stream.
The narrow focus of this tool should yield significant profits
Neha Chamaria (Duke Energy): Duke Energy is one of the largest regulated utilities in the United States and operates in growing places like Florida and the Carolinas, among others. In fact, the company sold its unregulated renewable energy business in 2023 for $2.8 billion and became a fully regulated facility. The company said it will use the roughly $1.1 billion net proceeds from the sale to reduce debt and strengthen its balance sheet.
2023 was also a strong year for Duke Energy as it added the largest number of customers in its history and boosted its five-year capital investment plan to $73 billion to advance its transition to clean energy. The utility giant aims to reach net-zero carbon emissions from power generation by 2050, and has therefore planned huge investments to modernize its electrical grid and expand its energy storage, renewable energy, natural gas and nuclear assets in the coming years.
Supported by a fully regulated portfolio of assets in growing jurisdictions, Duke Energy expects to increase its adjusted earnings per share by 5% to 7% through 2028. When combined with a 4% dividend yield, management believes Duke Energy investors could earn approximately 10% annual returns. Duke Energy is also a bankable dividend stock. It has paid a quarterly dividend for 98 years and has increased its dividend over time. Earnings growth has significantly enhanced shareholder returns to date. In the past 10 years, Duke Energy stock has doubled investors' money when earnings are taken into account.
With Duke Energy now fully regulated and its balance sheet strengthened, income investors have a strong reason to consider these boring utility stocks
Should you invest $1,000 in Duke Energy now?
Before you buy shares of Duke Energy, consider the following:
the Motley Fool stock advisor The analyst team has just defined what they think it is Top 10 stocks Let investors buy it now… and Duke Energy wasn't one of them. The 10 stocks that were discounted could deliver huge returns in the coming years.
Think when Nvidia I prepared this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $652,342!*
Stock advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. the Stock advisor The service has More than four times The return of the S&P 500 since 2002*.
*Stock Advisor returns as of May 13, 2024
DiLallo died He has no position in any of the stocks mentioned. Neha Chamaria He has no position in any of the stocks mentioned. Robin Gregg Brewer He has positions in the Black Hills. The Motley Fool recommends Duke Energy. The Motley Fool has Disclosure policy.
3 high-yield stocks to buy in this boring sector Originally published by The Motley Fool
