Utility Dividends Continue Their March Upward During H1'17

The following post was written by research groups within our energy offering, including Regulatory Research Associates, or RRA. For further information on the full reports, please request a call.

• The average dividend growth rate for the 12 months ended June 30, 2017 by the 58 RRA-covered utilities that increased their dividends — now including the nine publicly traded water utilities — was 6.0%. That rate was up slightly from the 5.9% growth rate for both the 12 months ended June 30, 2016 and calendar-2016.

• During the 12 months ended June 30, 33 electric utilities increased dividends by an average of 6.0%, while two electric utilities kept their dividends unchanged. All 16 gas utilities and all nine water utilities each increased dividends by an average of 6.1%.

• The average utility dividend payout ratio, based on S&P Capital IQ 2017 consensus earnings and dividend estimates, is 63%, up from the 60% average payout ratio for full-year 2016. Consensus mean estimates suggest that earnings are estimated to grow about 2%, while dividends are estimated to grow about 7%. However, our observations suggest that most mainstream utilities look for earnings growth in coming years in the 3%-5% range.

The number of utilities increasing dividends has generally trended higher since 2003, when 30 utilities raised dividends. The pace and regularity of growth has been considerably more stable in recent years, compared with the early-to-late 2000s, when companies were recovering from a turbulent period, during which dividend reductions, and subsequent large increases, were not uncommon. Steady profit growth amid overall financial strength throughout the industry have been the driving forces behind the improved results in this study.

ONE Gas Inc., the largest natural gas distributor in Oklahoma and Kansas, increased its dividend by the largest percentage in the 12 months ended June 30, to $1.54 per share from $1.30 per share for the 12 months ended June 30, 2016. Management has provided guidance that forecasts 8%-10% annual dividend hikes between 2016 and 2021, with a target dividend payout ratio of 55%-65%.

Edison International was also among the top dividend-raising companies over the past twelve months, with a 14% increase to $2.05 per share, as it aims to increase its payout ratio above the low end of its target range of 45% to 55%.

Dividend increase averages in this report were calculated by summing the nominal dividends paid by all companies in our index and then computing the total's percentage change.

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