5 Best Utilities for Dividend Growth

Brett Owens, Chief Investment Strategist
Updated: August 9, 2017

If you’re buying utility stocks for dividends, focus on the firms that are boosting their payouts the fastest. I’ll give you my top 5 in a minute. But first, let me explain why this strategy is a must for utility investors today.

The Utilities Select Sector Spider ETF (XLU) pays just 3.3% currently. This puts utility dividends near 7-year low.

The problem with buying utility stocks with low yields is that, in most cases, payout boosts aren’t going to provide much help. XLU has only raised its dividend by a total of 24% over the last 7 years. That’s less than 3.5% annually.

This means that anyone who buys XLU today will probably need to wait 12 years to see just a 5% yield on his or her initial investment.

Ironically, it’s the deregulated part of these businesses that are getting crushed. Power and natural gas prices are in the tank. Utilities without the protective shelter of government regulation are experiencing the worst of both business worlds.

Your grandpa had it right – invest in regulated utilities. We should do the same, and strive for 80% regulation or better. Here are 5 candidates that boast strong protected business, with above-average growth prospects, too.

5 Mostly-Regulated Utilities Ready to Grow Dividends

Southern Company (SO) supplies power to 4.4 million customers in four southeastern states. It’s been paying dividends every year since Harry Truman was in the White House (1948, to be exact). And in the last 36 years, it’s hiked its payout 180%, or about 5% annually, on average.

Today, the stock yields 4.3%. The company’s heavy reliance on coal has been a big knock on investing in it in recent years. But it’s remedying that by spending more on renewables. It’s also in the process of buying natural gas distributor AGL Resources Inc. (GAS), which will cut its reliance on electricity, double its customer base and support its shift to gas-fired generation.

Duke Energy (DUK) has paid a dividend for 89 straight years, and counting. From 2009 to 2014, the company had been growing payouts at a sleepy 2% clip. But last year, the company turned up the volume, doubling the raise to 4%.


It intends to keep payout increases moving in tandem with earnings-per-share (EPS) growth, which it’s projecting to be 4-6% for the long-term. This will be powered by $20 billion in investments Duke is making through 2019 towards new generation, infrastructure, and renewables. The stock yields 4.2% today.

Edison International (EIX) boasts expected rate base growth of 7-8%, which is well ahead of the national average of about 5%. Since 2005, Edison has doubled its dividend – with an increase of 35% in the last two years alone!


Its 39% payout ratio is still low for a utility. Edison is targeting a 45-55% payout ratio – which means its 2.7% yield has plenty of room to keep moving in the years ahead.

WEC Energy Corp (WEC) is now the leading electric and natural gas utility in the Midwest. The company has grown its dividend an amazing 330% over the last 10 years, and its total stock return hasn’t been far behind:


More than 99% of earnings come from regulated operations. These are expected to grow at 5-7% annually beyond 2016, thanks to multi-year infrastructure projects. Dividend raises should happen in parallel, which means the current 3.4% yield will double in the next decade or so.

NextEra Energy (NEE) is the largest developer of renewables in North America. Most of its customers are based in Florida and serviced by subsidiary Florida Power & Light Company. The company has negotiated non-compete deals with many municipalities. Thanks to these agreements, 80% of NextEra’s business is protected.

Business has been good for decades. The company has increased its dividend for 21 straight years. And those have been meaningful raises – it’s compounded its payout at 8% annually over the past decade to investors.


The next three years look good for NextEra too, with analysts projecting 6-8% EPS growth. The stock pays 3% today.

Live Off Dividends Forever With This “Ultimate” Retirement Portfolio

If you want to retire comfortably, you need big dividends. The steady drumbeat of income is what helps pays the bills and keeps you afloat when you’ve stopped collecting a paycheck.

But if you want to get through retirement without ever touching your nest egg, you need more than just giant dividends – you need dividend growth to beat back inflation, and you need capital appreciation to keep building your nest egg. The “triple threat” stocks in my “8% No Withdrawal” retirement portfolio will deliver exactly that!

How many times have you seen a pundit shill for OK-yielding blue chips like Coca-Cola or Kellogg? They’re not bad companies, but they leave you with just 3% to 4% in dividends, paltry payout hikes and little in the way of growth potential.

You and I both know that math doesn’t add up. Those 3% to 4% returns on a nest egg of half a million dollars will only generate $20,000 in annual income from dividends at the high end!

You’ve worked your tail off for decades. So you deserve more out of your retirement.

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I’ve spent most of the past few months digging into the high-dividend world, and I’ve had to weed out several yield traps that looked great on their surface, but potentially disastrous at a closer look. The result is an “ultimate” dividend portfolio that provides you with …

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This all-star cluster of stocks features the very best of several high-income assets, from preferred stocks to REITs to closed-end funds and more, that combine for a yield of more than 8%.

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Don’t scrape by on meager blue-chip returns and Social Security checks. You’ve worked too hard to settle when it matters most. Instead, invest intelligently and collect big, dependable dividend checks that will let you see the world and live in comfort for the rest of your post-career life.

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