Here a few reasons: 1. They are generally less volatile than the market as a whole (low beta). 2. Their products are something that people continue to need and use no matter what the economy is doing, thus, 3. Their dividends tend to be more stable and secure.
Utilities would be the perfect dividend income investment, except for one thing – they tend to have a very low dividend growth rate. As such, you wouldn’t want a whole portfolio of utilities and you need to be very selective in which utilities are included in your portfolio, and when they are purchased.
The dividend growth rate is a key metric in many calculations. As such, I use a conservative estimate as follows: The minimum dividend growth rate of the 1, 3, 5, 7, 10 year compound annual growth rate or 15%, if dividends grew on average in excess of 15% for each consecutive 4 year period, within the last 10 years of history.
This week, I screened my dividend growth stocks database for utilities with a yield at or above 4% and a dividend growth rate above 1%. The results are presented below:
Black Hills Corp. (BKH) is a diversified South Dakota-based holding company that encompasses electric utility and integrated energy businesses. The company has paid a cash dividend to shareholders every year since 1942 and has increased its dividend payments for 45 consecutive years. Yield: 4.0% | Dividend Growth Rate: 2.1%
South Jersey Industries Inc. (SJI) provides regulated natural gas distribution service in southern New Jersey, and non-regulated energy marketing and other services. The company has paid a cash dividend to shareholders every year since 1952 and has increased its dividend payments for 9 consecutive years. Yield: 4.0% | Dividend Growth Rate: 4.5%
Questar Corp. (STR) is an integrated natural gas holding company that is engaged in gas transportation and storage, and retail gas distribution primarily in Utah. Its exploration and production unit was spun off in mid-2010. The company has paid a cash dividend to shareholders every year since 1935 and has increased its dividend payments for 36 consecutive years. Yield: 4.2% | Dividend Growth Rate: 6.2%
Southern Company (SO) is an Atlanta-based energy holding company and is one of the largest producers of electricity in the U.S. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 14 consecutive years. Yield: 4.9% | Dividend Growth Rate: 3.4%
As with past screens, the data presented above is in its raw form. Some of the the companies would be disqualified for poor dividend fundamentals. However some of the others may be worth additional due diligence.
My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 250+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.
Full Disclosure: Long SO in my High-Yield Portfolio. See a list of all my dividend growth holdings here.
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Tags: BKH, SJI, STR, SO,