Increasing the dividend for at least 50 consecutive years is the only requirement to become a Dividend King, but some stocks make it, including several utilities. It seems simple, but the feat is challenging to achieve. A company must have a product or service that is always in demand, especially during a recession, and cannot be easily duplicated by a competitor.
Five decades of dividend growth is such a rare feat that there are just 44 Dividend King companies in 2024. This exclusive group is an attractive place to find companies with significant competitive advantages and solid prospects for growth.
Diving deeper into the Dividend Kings, we like the Utility sector for its safe and reliable income. These names provide water, electricity, and natural gas, even during an economic downturn.
Investors often favor utility stocks because they are predictable, have recession-resistant business models, and pay steady, growing dividends over time. While these characteristics are essential under any market conditions, they become highly sought after when massive selloffs occur.
This article will highlight three of our favorite utility stocks and Dividend Kings, including:
- American States Water Company (AWR)
- Northwest Natural Holding Company (NWN)
- SJW Group (SJW)
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3 Dividend Kings Utilities
American States Water Company
First up is American States Water Company, a water and electric utility company and Dividend King that operates in several states, but mainly in California. The company generated revenue of ~$595.9 million in the last twelve months. It has a market capitalization of approximately $2.78 billion.
American States Water is composed of two businesses. The Utility business primarily focuses on the regulated water service to customers in California. The Golden State Water Company has nearly 264,100 water customers across ten counties, including the metropolitan area of Los Angeles. This segment also has a small electric utility business, Bear Valley Electric Service, with 24,800 customers.
The American States Utility Services segment is a non-regulated water and wastewater service business with contracts covering 11 military bases across the United States. The regulated water business is the most significant contributor to American States Water, generating around two-thirds of total revenue.
Like most utility companies, American States Water has limited competition in its region. While this is a plus from a competition perspective, the company relies heavily on seeking rate hikes from regulators to grow the business.
Unlike many utility companies, American States Water has a solid track record of seeing rate hikes as it spends immense capital to maintain and upgrade its systems. As a result, the company has seen its average water rate base grow with a compound annual growth rate (CAGR) of more than 9% over the last few years. This growth drove American States Water’s earnings-per-share growth by about 8.3% annually over the previous five years.
American States Water’s non-regulated water business is also essential. The company signs extremely long-dated contracts of 50 years with military bases to provide water and wastewater services. This point gives American States Water predictable results for a third of its business on a very long time horizon.
The strength of this business model has enabled American States Water to grow its dividend for 69 consecutive years. Shares yield 2.3% today, above the 5-year average of 1.7%, as seen in the chart from Portfolio Insight*. However, the company has raised its dividend with a CAGR of about 8% since 2014, a very high growth rate for a utility company. The last dividend increase was in August 2023 to $0.43 per share per quarter. The company also has a reasonable expected payout ratio of just 57%, which is low for a utility.
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Northwest Natural Holding Company
Next is Northwest Natural Holding Company, a firm founded in the 1850s but today provides natural gas service in the Pacific Northwest to millions of people. The approximately $1.3 billion company had annual sales of $1,217 million in the past twelve months.
Northwest Natural is a diversified utility company and a Dividend King. The company’s primary business (92% of revenue) is providing natural gas to Oregon and Southwest Washington customers. The company has 2.5 million customers, over 795,000 connections, and 14,000 miles of modern pipeline. Additionally, Northwest Natural has nearly 21 billion cubic feet of underground storage capacity in Oregon.
Additionally, the company’s waste and wastewater business serves around 165,000 people in Oregon, Washington, Idaho, Arizona, and Texas, which are some of the fastest-growing service areas in the country. The firm grows this segment through a rollup strategy, acquiring and consolidating small systems.
Northwest Natural has also entered the renewable energy market through its NW Natural Renewables. The company aims to invest in renewable energy for a decarbonized future and has committed to two projects for converting landfill waste gases into renewable natural gas (RNG).
The utility hasn’t been as successful with rate hikes as American States Water over the past decade, which, combined with a higher share count, is why the company’s earnings-per-share have grown slowly in the past decade.
The company aims to reverse this trend of declining earnings as it expects to grow its customer and rate bases over the next few years. Northwest Natural has had success increasing its customer base in the past. However, after peaking in 2017, this growth is slowing. In addition, leadership has guided towards a 5% to 7% annual increase in rate bases through 2027, a strong reversal of prior trends.
Northwest Natural’s natural gas business accounts for the vast majority of revenue and earnings, so gaining customers and rate base hikes would go a long way toward higher growth. Another factor working in Northwest Natural’s favor is that two-thirds of customers live in residential areas. As a result, most of these customers would likely continue to pay their utility bills in the event of a recession.
Northwest Natural’s dividend growth streak stands at 68 years. The dividend has barely moved since 2014, with a CAGR of less than 1%. However, the stock does yield about 5.5% at the moment, over three times the average yield of the S&P 500 Index. Northwest Natural has an expected payout ratio of 71%, lower than nearly any other year since 2011.
Related Articles About Northwest Natural on Dividend Power
Finally, we have SJW Group, another water utility company, and Dividend King, which produces and distributes water to customers in four states. The company has a market capitalization of $1.88 billion and made $670 million in revenue in the trailing twelve months.
SJW Group has 1.5 million customers, 402,900 service connections, 400+ wells, 160+ pumping stations, and more than 300 water storage facilities across its California, Texas, Connecticut, and Maine service territories. So, there might not be a more diversified water utility company by region.
SJW Group’s primary business used to be located in only the Silicon Valley area of California and the area north of San Antonio, Texas. These regions were amongst the fastest growing in the country. SJW Group has seen solid growth in rate bases in its most important area, California.
In an effort to diversify and expand its business, SJW Group purchased Connecticut Water in late 2019, a former Dividend King. This acquisition extended the SJW Group service area to Maine and Connecticut. In addition, this acquisition added 450,000 customers and 138,000 connections to the company. The purchase also dropped the reliance on California for revenues, as the contribution from this region declined from ~90% of the total to 54% after the acquisition.
Lastly, SJW Group has a small real estate business developing properties for residential and warehouse customers in California and Tennessee. The income generated from this business goes to paying for water-related upgrades elsewhere.
The addition of Connecticut Water has already been a tailwind to results as revenue jumped more than 34% in 2020 from 2019. In addition, after weakness during the pandemic, the strength of the company’s business has enabled earnings-per-share to compound at 8% annually in the past three years.
As seen in the chart from Portfolio Insight*, SJW Group’s dividend has compounded at around 7.6% per year since 2014, and the company has a dividend growth streak of 57 years. The stock yields about 2.7% today, and the projected payout ratio of 47.3% is conservative for a utility.
Final Thoughts on 3 Dividend King Utilities
We feel confident in ranking the Dividend Kings among the best for growing dividends. The roughly 44 companies that constitute this group have raised dividends far longer than the vast majority of other companies in the market.
Among the different sectors of the economy, the Utility sector is one of our favorites as it can provide dependable, steady dividends during all phases of the economic cycle.
American Water States, Northwest Natural, and SJW Group are three of our favorite Dividend King utility stocks. Each name has at least 57 years of dividend growth, providing market-beating income with reasonable estimated payout ratios. Investors looking for safe and secured income should consider adding these three stocks to their portfolios.
Disclosure: Members of the Sure Dividend team are long AWR, NWN, and SJW.
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Nathan Parsh written about investing, with a focus on dividend growth investing, since 2016. He currently writes for GuruFocus and has written for Seeking Alpha in the past. He is a member of Sure Dividend team since 2018.