Home » Seeking Alpha » 2 Utilities Yielding Over 4% With Safe Dividends
Natural Gas Utilities

I like regulated utilities. They tend to have stable revenue and earnings that grow over longer periods of time. Yes, there are short-term fluctuations, but in general the top and bottom lines grow with time. Regulated utilities also have a monopoly with captive markets and don’t have to deal with the excessive risks. In this article, I write about two utilities yielding over 4% with safe dividends. I ran a screen that focused on yield, profitability, valuation, and dividend safety. Both NorthWestern Corporation (NWE) and National Fuel Gas Company (NFG) came to the forefront. NorthWestern has raised the dividend for 16 consecutive years. National Fuel Gas has raised the dividend for 49 years making it a Dividend Champion and it is just shy of becoming a Dividend King. I view both utilities as having safe dividends and as long-term buys.

Background on Screening for Utilities

I ran a screen for yield, profitability, valuation, and dividend safety. Specifically, I used the below criteria.

Dividend Yield > 4%

Gross Margins > 70%

Operating Margins > 20%

Net Profit Margins > 10%

Price-to-Earnings Ratio [TTM] < 15.0

Beta < 1.0

Payout Ratio [TTM] < 70%

These criteria cover what I am normally interested in for utilities. I want utilities with high yield but also safe dividends. Typically, I look for yields over 3%, but with the downturn I upped my criteria to yields over 4%.Gross margins are a measure of a company’s efficiency. In general, it is the difference between revenue and cost of goods sold. In the case of utilities, it is the difference between revenue and cost to produce power. Some companies use higher cost sources of power or buy power on the spot market. This would lower gross margins. Operating margins account for costs of running the business and is also a measure of efficiency. From the context of valuation, I wanted a stock with below market valuation. The S&P 500 is trading at a P/E ratio of approximately 20.6. I used a P/E ratio [TTM] of 15.0 as a threshold for valuation…

Disclosure: I am long NWE.

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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