Energy utility Wisconsin Energy Corporation (WEC - Free Report) has decided to share more profits with its shareholders. The board of directors has approved of a hike in Wisconsin Energy’s quarterly dividend rate to 39 cents per share from the current payout of 38.25 cents per share.
The increased dividend will be paid on Mar 1, 2014, to shareholders of record on Feb 14, 2014. The new annualized dividend rate of $1.56 per share reflects growth of 1.96% from the previous payout of $1.53 per share.
The current dividend yield of the company is 3.79%, which is higher than the industry average of 2.13%. The dividend payout ratio, trailing twelve months, is at 58.38%, which also exceeds the industry average of 37.84%. The company targets a lofty dividend payout ratio of 65–70% by the end of 2017. The current hike will take Wisconsin Energy a step closer to that long-term goal.
In the first nine month of 2013, the company disbursed $242.3 million as dividends. If the share count remains unaltered from the third quarter, Wisconsin Energy needs an additional $17 million to pay the increased dividend. The free cash flow of the company at the end of the aforesaid period was $552.6 million, which we believe is more than enough to support the increased payment.
Wisconsin Energy has been performing well and its earnings per share have exceeded our expectation in the preceding four quarters with an average earnings beat of 7.43%.
Utility operators are fundamentally defensive stocks due to the regulated nature of their business. Utilities hardly come out with large earnings surprises but are consistent performers and regularly distribute a portion of their profits to shareholders. Wisconsin Energy has been consistently doing so for more than the past seven decades.
We believe these fundamental strengths will help the company to attract income oriented investors at a time when the company needs to generate additional funds for capital investments.
Wisconsin Energy currently has a Zacks Rank #1 (Strong Buy). Other players in the utility space, which look well placed at current levels, include Korea Electric Power Corp. (KEP - Free Report) , National Grid plc (NGG - Free Report) and NRG Yield, Inc. (NYLD - Free Report) . All these stocks carry the same Zacks Rank as Wisconsin Energy.