If you like boring dividend stocks, looking at utilities is a good place to start. But not all tools are the same, and that’s why you’ll discover Black Hills(NYSE: BKH), NextEra Energy(NYSE: NO)And Eversource energy(NYSE: ES) all worth a closer look as November begins. The big story here, however, is that each of these utilities is attractive for a very different reason.
Don’t feel too bad if you haven’t heard of Black Hills. With a market capitalization of about $4.1 billion, it is a fairly small player in the utility sector. It serves approximately 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 company, although it has benefited and will continue to benefit from the fact that its customer base is growing at a rate nearly three times faster than the entire US population growth rate.
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Still, the real appeal here is the slow and steady pace of Black Hills’ dividend growth. Over the past decade, the dividend has increased by about 5% annually, which is pretty good. But the dividend itself has been growing every year for 54 years in a row, making Black Hills one of the few Dividend Kings in the utility industry. Now add to that the dividend yield of 4.4%, which is significantly above the utility average of 2.7%. Sometimes good things come in small packages.
If Black Hills is the slow and steady tortoise, then NextEra Energy is the hare. This is mainly reflected in the 11% annual dividend growth that the country has achieved over the past ten years. That’s a shockingly large number for a utility, with low to mid single digits 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 as good as Dividend King Black Hills, but add in the dividend growth and you can see why investors like NextEra stock.
The growth story here is driven by two companies. First, NextEra has a solid foundation in the regulated utility space with Florida Power & Light. It has benefited from immigration to the Sunshine State for years. On top of that strong core, NextEra has built one of the largest solar and wind companies in the world. And clean energy still has a huge runway for growth, so there’s no reason to think NextEra Energy’s dividend growth story is about to stall.
The only problem is that Wall Street is well aware of the whole story here, which is why the shares tend 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.
In many ways, Eversource Energy has the least compelling story of this trio. With a market capitalization of $23 billion, it is a large utility, but not an industrial giant. Its operations are spread across a mix of utilities, including regulated electric utilities, water utilities, natural gas utilities and transmission assets, but it is not a true industry leader in any of these businesses. Although it operates in the Northeast, which is an important sector of the United States, the region does not have as large a population draw as the Sunbelt.
What makes Eversource interesting is the stock’s dividend yield of 4.3%. That’s near the highest level in the company’s recent history, suggesting it’s currently on sale. It is fair to say that the company has had some problems with investments in offshore wind farms, which has led to large one-off costs. Investors therefore have reason to be somewhat gloomy about the stock. But since the dividend has been growing steadily for more than a quarter century, Wall Street may be too negative.
In fact, management predicts earnings growth of 5% to 7% for the foreseeable future, which should lead to a similar level of dividend growth. If you are value sensitive, Eversource could be a good stock for you in November.
There is 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 almost every investor nuance. Black Hills looks like every conservative investor’s dream company. NextEra Energy will likely please dividend growth investors, and investors who like to buy stocks when they are cheap will likely like Eversource Energy.
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Reuben Gregg Brewer has positions in Black Hills. The Motley Fool holds and recommends NextEra Energy. The Motley Fool has a disclosure policy.
The 3 Best Dividend-Paying Utility Stocks to Buy in November were originally published by The Motley Fool
