3 Safe Utilities With High Dividend Yields

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The utility sector has long been known for its abundance of high-dividend stocks. Utility stocks widely pay higher dividend yields than the market average, along with steady dividend increases every year.

And, utility stocks are much less volatile than most other sectors. With volatility spiking in the past few weeks, risk-averse investors could consider utility stocks for their above-average yields and steady dividend growth. These 3 utility stocks have safe dividends and above-average yields.

Consolidated Edison (ED)

Consolidated Edison is a holding company that delivers electricity, natural gas, and steam to its customers in New York City and Westchester County. It has annual revenues of nearly $13 billion. ConEd has increased its dividend for over 40 years, making it a Dividend Aristocrat. Shares currently yield 3.2%.

In the most recent quarter, ConEd reported $3.42 billion of revenue, an increase of 15% year-over-year. Adjusted earnings-per-share of $0.64 beat analyst estimates by $0.05 per share.

Consolidated Edison confirmed its prior guidance for 2022 as well. The company expects adjusted earnings-per-share of $4.40 to $4.60 for the year. This would be a 2.5% increase from the prior year. The company also expects a five-year earnings growth of 5% to 7%.

Rate increases are a major driver of Consolidated Edison’s growth. Just like most other utilities, thanks to its heavy investments in infrastructure, Consolidated Edison is typically allowed by the regulatory authorities to raise its rates. As a result, it enjoys reliable cash flows and can thus service its debt.

One key competitive advantage for Consolidated Edison is that consumers do not curtail their electricity consumption even during the roughest economic periods, so the stock is resilient during recessions. This resiliency should be attractive to investors.

Northwest Natural Holdings (NWN)

NW Natural was founded in 1859 and now serves more than 760,000 customers. The utility’s mission is to deliver natural gas to its customers in the Pacific Northwest and it has done that well, affording it the ability to raise its dividend for 66 consecutive years, making it a Dividend King.

In the 2022 second quarter, revenue of $195 million increased 31% from the same quarter last year. Earnings-per-share of $0.05 beat estimates by $0.07 per share, as the company earned a surprise profit when analysts were expecting a loss. The company reaffirmed its EPS guidance and continues to expect $2.45 to $2.65 in full-year EPS. The company also reaffirmed its long-term target of 4% to 6% compound annual EPS growth through 2027.

This should be more than enough growth to continue increasing the dividend each year. NW Natural’s quality metrics have been very steady in the past decade. Approximately 76% percent of its total assets are encumbered by debt, which is completely acceptable for a utility. Its interest coverage is fairly strong at 3.6, so there are certainly no financing concerns moving forward. The payout ratio is around three-quarters of earnings, which is much improved from previous years.

NWN’s competitive advantage is in its monopoly in its service areas. This allowed it to perform extremely well during the Great Recession as discretionary use of natural gas and water is very low. The stock has a current dividend yield of 3.7%.

Black Hills Corp. (BKH)

Black Hills Corporation is an electric utility that provides electricity and natural gas to customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Black Hills was founded in 1941, and the company is headquartered in Rapid City, South Dakota. The company has increased its dividend for 50 years, making it a Dividend King. Shares currently yield 3.2%.

Revenue of $474 million in the 2022 second quarter rose 27% year-over-year. Earnings-per-share of $0.52 beat analyst estimates by $0.12. The company affirmed its guidance for 2022 and expects EPS in a range of $3.95 to $4.15.

Black Hills’ growth over the coming years depends on several factors. This includes rate reviews, which drive revenues and profits per kWh. Another factor is the expansion of the company’s existing assets via new utility infrastructure. Black Hills regularly adds new projects to its growth investment backlog. Black Hills’ planned growth investments include new electric transmission lines and new natural gas pipelines to service its customers.

The company pays out roughly 60% of its net profits in the form of dividends. This is a comfortable payout ratio which means the dividend is secure. Demand for electricity and gas is not very cyclical, although it is dependent upon weather conditions to some degree. Thus, Black Hills should remain profitable under most circumstances. The fact that customers tend to stick with their provider means that Black Hills operates a relatively stable business model.

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