3 High-Yield Utility Stocks With Safe Dividends

Investors typically buy utility stocks for safety and dividends. Indeed, utility stocks have often been referred to as “widow and orphan” stocks due to their consistency and reliable dividend payouts year after year.

With the ongoing war in Ukraine, inflation, and persistently high interest rates, risk-averse income investors could consider the relative safety of utility stocks.

These three utility stocks have high dividend yields significantly above the S&P 500 average, as well as the ability to maintain their dividends even during recessions.

140 Years of Dividends

UGI Corp. UGI is a gas and electric utility that operates in Pennsylvania, in addition to a large energy distribution business that serves the entire U.S. and other parts of the world. It was founded in 1882 and has paid consecutive dividends since 1885. The company operates in four reporting segments: AmeriGas, UGI International, Midstream & Marketing, and UGI Utilities.

UGI reported strong financial results for the fiscal quarter ending March 31, 2024, with GAAP diluted EPS reaching $2.30 and adjusted diluted EPS at $1.97, compared to $0.51 and $1.68, respectively, in the prior-year period. Despite warmer weather across its service territories, the company achieved higher margins from natural gas marketing activities and reduced operating expenses, leading to robust second-quarter performance.

Additionally, UGI affirmed its commitment to returning value to shareholders through dividend payments, marking the 140th consecutive year of paying dividends. UGI remains confident in its ability to deliver full-year results within its fiscal 2024 adjusted EPS guidance range.

UGI generates steady growth over the years. The company completes acquisitions periodically, and should be enough to drive earnings-per-share growth over the long-term. We see the regulated utility business growing at a steady rate, enough to continue paying and raising the dividend. We expect a ~50% payout ratio for the foreseeable future, indicating excellent dividend safety.

UGI’s main competitive advantage is in its highly diversified business model. It has electric and gas utilities, propane distribution that covers a wide geographic area and diverse customer base, and a variety of other energy generation and distribution activities. This allows it to weather downturns extremely well.

UGI has increased its dividend for 36 consecutive years and the shares currently yield 6.5%.

There's Dividend Gold in Them Thar Hills

Black Hills Corp. BKH 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 reported its first-quarter earnings results on May 8. It generated revenues of $730 million during the quarter, which was 21% less than the previous year’s quarter. The decline in the company’s revenues went hand in hand with a decline in the company’s fuel and purchased power costs, however.

Black Hills generated earnings per share of $1.87 during the first quarter, which was above the consensus analyst estimate. EPS were up by 8% versus the previous year’s quarter. Q4 and Q1 are seasonally stronger quarters due to higher natural gas demand for heating, which was again showcased by the above-average profitability during the first quarter.

The company pays out roughly 60% of its net profits in the form of dividends. Its five decades-long dividend growth track record gives investors assurance that a dividend cut is unlikely from this utility company. Demand for electricity and gas is not very cyclical, although it is dependent upon weather conditions to some degree.

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. The company should also be able to weather future recessions well, which creates appeal for more conservative investors.

Black Hills has increased its dividend for over 50 consecutive years, placing it on the exclusive Dividend Kings list.

BKH stock currently yields 4.9%.

Head 'North' By Northwest

NW Natural Holding NWN was founded in 1859 and has grown from a small utility to a large publicly traded utility today. Its 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 68 consecutive years.

The company reported its financial results for the first quarter of 2024, with net income reaching $63.8 million, or $1.69 per share, a decrease from $71.7 million or $2.01 per share in the same period of 2023. Despite this decline, the company saw notable achievements, including adding nearly 15,000 gas and water utility connections in the last 12 months, driven mainly by robust water acquisitions, and providing bill credits totaling nearly $30 million to Oregon gas customers in early 2024.

NWN also experienced a significant demand for its gas system during the winter storm in January, setting a new peak day record for therms delivered.

We are forecasting an average EPS growth rate of 7.5% for the next five years as NW Natural pushes through approved pricing increases and continues to acquire customers at low-single-digit rates, as it did with the new Oregon rate case. NW Natural also has its water utilities business that will provide a small amount of growth, but higher earnings will primarily come from customer and pricing growth while the company invests in its water business for longer-term growth.

NW Natural’s quality metrics have been very steady in the past decade. Approximately 76% of its total assets are encumbered by debt, which is acceptable for a utility. Its interest coverage is fairly strong at 3.6x. And, its dividend payout ratio is around 75%-80% of earnings, which again is normal for a utility stock.

Its 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. At the same time, its regulatory nature prevents it from driving strong profitability growth during economic booms.

NWN has one of the longest dividend growth histories in the entire U.S. stock market, having increased its dividend for 68 consecutive years.

NWN is a member of the Dividend Kings list and shares currently yield 5.5%.

More Dividends

At the time of pubication, Ciura had no positions in any stocks mentioned.