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Tags: utility stocks | dividends | market volatility | equity alternatives

Bob Ciura: 3 Utility Stocks for Safe Dividends

utility poles
Utility poles for electric wire. (AP)

Bob Ciura By Monday, 13 December 2021 02:41 PM EST Current | Bio | Archive

The utility sector has long been known for its abundance of high-dividend stocks. Utility stocks widely pay higher dividend yields than the market average, along with steady dividend increases every year.

And, utility stocks are much less volatile than most other sectors. With volatility spiking in the past few weeks, risk-averse investors could consider utility stocks for their above-average yields and steady dividend growth.

Consolidated Edison (ED)

Consolidated Edison (ConEd) is a holding company that delivers electricity, natural gas, and steam to its customers in New York. The company generates annual revenue above $13 billion.

The company has increased its dividend for over 40 consecutive years. As a result, ConEd is on the Dividend Aristocrats list.

ConEd has registered solid growth in 2021. In the most recent quarter, revenue increased 8.4% to $3.6 billion. Higher rate bases for gas and electric customers added $0.06 to the company’s New York operations.

Higher costs from storm-related events dragged down profits, as adjusted earnings-per-share declined 4.7% year-over-year. Still, ConEd expects 2021 to be another highly profitable year. The company reaffirmed prior guidance of adjusted earnings-per-share in a range of $4.15 to $4.35 for 2021.

At the midpoint of guidance, ConEd is expected to grow earnings-per-share by ~2% in 2021. This would be sufficient to provide another small dividend hike next year. ConEd has a projected dividend payout ratio near 70% for 2021, which indicates the dividend is sufficiently covered.

ConEd stock has a current yield of 4%.

American States Water (AWR)

American States Water has an impressive dividend history. The company has increased its dividend for 67 consecutive years, giving it one of the longest streaks in the entire market. American States Water is on the exclusive list of Dividend Kings.

AWR is a utility company with two business units: Utilities (primarily water, some electricity) and Services (wastewater services on several US military bases). The company’s services unit spans several US states.

Water stocks are a high-growth segment of the utility sector. This is because of many factors, such as the ability of many water utilities to grow their earnings at a faster pace than electric utilities. The company has grown its earnings per share at an 11% average annual rate in the past decade.

The company has continued to perform well in 2021. Adjusted earnings per share increased by 8.6% per share, compared to last year’s same period.

Rate hikes are a major component of the company’s future growth. Its water rate base has increased by 9.2% per year since 2018. This bodes well for the company’s earnings growth, which will then flow through to shareholders through rising dividends.

AWR management has a target dividend growth rate of 7% per year. Combined with the 1.5% dividend yield, AWR is especially appealing as a dividend growth stock within the utility sector.

American Electric Power (AEP)

American Electric Power is one of the largest regulated utilities in the United States and offers electricity generation, transmission, and distribution services in 11 states. Its energy sources are coal, natural gas, renewables, and nuclear. 

Its income sources are integrated utilities, transmission and distribution, competitive transmission, and unregulated generation and marketing.

The company has delivered steady results throughout the year. AEP recently reported third-quarter results. GAAP earnings per share came in at $1.59, up 5.3% from $1.51 in the year-ago quarter.

Renewable sources of energy are a growth catalyst for AEP moving forward. it plans to install 3.9 gigawatts (GW) of solar and 4.4 GW of wind power by 2030. Further, AEP’s acquisition of Sempra Energy’s renewable business, which included joint ownership of 7 wind farms and 1 battery installation, will nearly quadruple AEP’s renewable portfolio by 2030.

AEP stock has a nearly 4% dividend yield, and the company has increased its dividend for over 10 years in a row.

Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

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The utility sector has long been known for its abundance of high-dividend stocks. Utility stocks widely pay higher dividend yields than the market average, along with steady dividend increases every year.
utility stocks, dividends, market volatility, equity alternatives
Monday, 13 December 2021 02:41 PM
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