Evergy Tops List of Top-Three Dividend-Paying Utility Investments
We expect this list of utility stocks to generate total returns above 10% over the next five years.
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Utility stocks are traditionally known as strong dividend payers, and for good reason. Utilities have low-risk business models and exist in a highly-regulated industry, which leads to consistent dividend payouts.
But some utilities have growth potential as well.
The following three utility stocks have safe dividends in any economy, and we expect each to generate total returns above 10% over the next five years.
1. Evergy Inc. (EVRG)
Evergy EVRG is an electric utility holding company incorporated in 2017 and headquartered in Kansas City, Missouri. Through its subsidiaries Evergy Kansas, Evergy Metro and Evergy Missouri West, the company serves approximately 1.4 million residential customers, nearly 200,000 commercial customers and 6,900 industrial customers and municipalities in Kansas and Missouri.
In early August, Evergy reported financial results for the second quarter of fiscal 2024. The company benefited from warmer-than-normal weather, rate hikes and higher transmission margin, partly offset by higher interest expense, operating and maintenance costs and depreciation. As a result, its adjusted earnings-per-share grew 11% over the prior year’s quarter, from $0.81 to $0.90, and beat the analysts’ consensus by $0.01.
The business outlook of Evergy is positive, as the utility has proved resilient to high interest rates and high inflation. Due to unfavorable weather in the greater part of 2023, Evergy incurred a -5% decrease in earnings-per-share last year, but it reaffirmed its positive guidance for 2024. It expects adjusted earnings-per-share of $3.73 to $3.93 and reiterated its long-term guidance for 4% to 6% adjusted earnings-per-share growth off the original guidance of $3.65 in 2023.Evergy has grown its earnings-per-share at a 4.7% average annual rate over the last decade. This mid-single digit growth rate is typical in the utility sector. However, Evergy has enhanced its investments in growth projects lately and it is likely to accelerate its growth pattern in the upcoming years.
The company expects to spend $12.5 billion on capital expenses in 2024 to 2028 while it will also reduce its operational and maintenance expenses. It has reduced these expenses by -18% since 2018 and expects to reduce them by another -8% until the end of this year.
Given also expected regulatory approval of 6% annual growth in rates until 2028, Evergy expects to grow its earnings-per-share by 4% to 6% per year until at least 2026. The utility also expects to grow its dividend in line with its earnings-per-share, at a 4% to 6% annual rate, and maintain a dividend payout ratio of 60% to 70% until at least 2026.
1. The AES Corporation (AES)
The AES (Applied Energy Services) Corporation AES was founded in 1981 as an energy consulting company. The corporation now has businesses in 14 countries and a portfolio of approximately 160 generation facilities. AES produces power through various fuel types, such as gas, renewables, coal and oil/diesel. The company has more than 36,000 gross megawatts in operation. In 2023, AES produced nearly $13 billion in revenue.
AES Corporation reported third quarter results on October 31, 2024 for the period ending September 30, 2024. Adjusted EPS rose 18% to $0.71 for Q3 2024. The company constructed and acquired 2.8 GW of renewable energy year-to-date, and is on course to add 3.6 GW of new projects online in 2024. Leadership expects to achieve the high end of its 2024 guidance for adjusted EPS of $1.87 to $1.97 for the full fiscal year.
Additionally, the company reaffirmed its expectation that it can grow EPS on average 7% to 9% through 2025 from a base year of 2020. It also still expects annual EPS growth of 7% to 9% from 2023 through 2027. The company is actively engaged in developing and acquiring new energy projects; it currently has a backlog of 12.6 gigawatts of renewables. AES expects to complete the majority of this backlog of projects over the next three years, but as it continues expanding, new projects could push this date out.
In May 2024, it announced the sale of AES Brasil which generated approximately $640 million of proceeds that it will use to invest in renewables and U.S. utilities. Management targets 10% CAGR in U.S. utilities rate base and is also forecasting 7% to 9% annual-adjusted EPS growth through 2027. We see AES growing adjusted EPS at 7% on average over the next five years.
The corporation has grown the dividend ever since it was instated at $0.08 in 2012, for a total of 11 years to date. The dividend has grown 10% per year on average since 2014, and 5% per year on average in the past five years.
2. Portland General Electric (POR)
Portland General Electric POR is an electric utility based in Portland, Oregon, providing electricity to more than 930,000 customers in 51 cities. The company owns or contracts more than 3.5 gigawatts of energy generation, between gas, coal, wind and solar, and hydro.
In 2023, the corporation generated $2.9 billion in revenue. The utility company is diversified by customer, with 37% of retail deliveries going to residential customers, 34% to commercial clients and 29% to industrial clients. The company is forecasting that 80% of its power delivered to customers by 2030 will be carbon free, and 100% carbon free by 2040.
Portland General reported third quarter 2024 results on October 25, 2024. The company reported net income of $94 million for the quarter, equal to $0.90 per diluted share on a GAAP basis, compared to $0.46 in Q3 2023. Retail energy deliveries rose 0.3% year to date compared to the same prior-year period, but wholesale energy deliveries soared 45%.
As a result, total energy deliveries rose 11%. Leadership narrowed its 2024 full-year guidance for adjusted earnings per share to $3.13 at the midpoint based on a series of assumptions, most notably a 2.5% increase in annual energy deliveries.
Portland General’s payout ratio has remained within or below its target payout ratio of 60% to 70% for most of the last decade. Going forward, we estimate that Portland General will likely remain within its target payout ratio as the dividend grows in line with earnings-per-share.
POR has increased its dividend for 18 consecutive years. On April 19, 2024, Portland General Electric announced a 5% increase in the quarterly dividend to $0.50 per share. POR has a safe dividend with a projected 2024 payout ratio of 65%.
At the time of publication, Ciura had no positions in any securities mentioned.