If you like boring dividend stocks, then looking at utilities is a good place to start. But all utilities aren't the same, which is why you'll find Black Hills(NYSE: BKH), NextEra Energy(NYSE: NEE), and Eversource Energy(NYSE: ES) all worth a closer look as November gets started. The big story here, however, is that each one of these utility companies is attractive for a very different reason.
1. Black Hills is small and reliable
Don't feel too bad if you've never heard of Black Hills. With a market cap of roughly $4.1 billion, it is a pretty small player in the utility sector. It serves about 1.3 million electric and natural gas customers in parts of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. It's a pretty boring business, though it has benefited and will continue to benefit from the fact that its customer base is growing at a rate that's nearly three times faster than overall U.S. population growth.
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Still, the real attraction here is Black Hills' slow and steady pace of dividend growth. Over the past decade, the dividend has been increased at a roughly 5% annualized clip, which is pretty good. But the dividend itself has been growing each and every year for 54 consecutive years, making Black Hills one of the few Dividend Kings in the utility sector. Now add in the stock's 4.4% dividend yield, which is notably above the 2.7% utility average. Sometimes good things do come in small packages.
2. NextEra Energy's dividend is growing fast
If Black Hills is the slow and steady tortoise, then NextEra Energy is the hare. That shows up most notably in the 11% annualized dividend growth it has achieved over the past decade. That's a shockingly large number for a utility, where low to mid-single digits is considered a solid outcome. To make the dividend story even more attractive, NextEra has increased its dividend every year for three decades. That's not quite as good as Dividend King Black Hills, but add in the dividend growth and you can see why investors like NextEra's stock.
The growth story here is driven by two businesses. First, NextEra has a solid foundation in the regulated utility space with Florida Power & Light. It has benefited for years from in-migration into the Sunshine State. Atop that strong core, NextEra has built one of the largest solar and wind companies on the planet. And clean energy still has a huge runway for growth ahead, so there's no reason to think NextEra Energy's dividend growth story is about to stall out.
The only problem is that Wall Street is well aware of all of the story here, so the stock tends to trade at a premium price. For example, the dividend yield today is 2.6%. That's slightly below the industry average, but if you're a dividend growth investor, you probably won't mind.
3. Eversource Energy looks cheap right now
Eversource Energy has the least compelling story of this trio in many ways. With a $23 billion market cap, it is a large utility, but not an industry giant. Its business is spread across a mix of utility business, including regulated electric utilities, water utilities, natural gas utilities, and transmission assets, but it really isn't an industry leader in any of them. While it operates in the Northeast, which is an important sector of the United States, the region isn't as big a draw as the Sunbelt, population-wise.
What makes Eversource interesting is the stock's 4.3% dividend yield. That happens to be near the highest levels in the company's recent history, suggesting that it is on sale right now. To be fair, the company has had some troubles with investment in offshore wind farms that have resulted in large one-time charges. So investors have a reason to be a bit downbeat about the stock. However, given that the dividend has grown steadily for over a quarter of a century, perhaps Wall Street is being too negative.
In fact, management is projecting 5% to 7% earnings growth for the foreseeable future, which should lead to a similar level of dividend growth. If you have a value bent, Eversource might be a good stock for you in November.
Three options for three different types of investors
There's no perfect stock for every investor, which is why investing is such an individual effort. But, as November gets underway, you can find dividend-paying utilities that will satisfy just about every investor nuance. Black Hills looks like a conservative investor's dream utility. NextEra Energy will likely satisfy dividend growth investors, and investors who like to buy stocks when they are cheap will probably appreciate Eversource Energy.
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Reuben Gregg Brewer has positions in Black Hills. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
