IDACORP Inc. (IDA - Free Report) announced the adoption of a new dividend policy that provides for a target long-term dividend payout ratio between 60% and 70% of its earnings. The previous payout ratio was set in 2011, with the long-term dividend payout ratio between 50% and 60% of earnings.
The board of directors will also be recommended to increase the annual dividend rate by 5% or more, in tune with the new dividend payout ratio.
Consistent Increase in Dividend Rate
IDACORP’s board of directors has approved an increase in dividend rate every year since 2012, which resulted in 110% increase in dividend rate over the period. The annual dividend rate of the company improved from $1.32 in 2012 to the present annual level of $2.68 per share.
The current dividend yield of the company is 2.5%, better than the Zacks S&P 500 composite’s average of 1.8%.
Can the Company Sustain Dividend?
The steps undertaken by the company, supported by ongoing improvement in economic conditions in its service territories, will support IDACORP’s consistent performance, and help it to pay regular dividend and increase the rate at regular intervals.
Gross domestic product in the company’s service area is expected to grow 3.7% and 4.2% in 2019 and 2020, respectively. At the end of the third quarter, unemployment rate in its service area was 2.8% compared with the national average of 3.5%. Customer growth led to an increase in operating income by $14.1 million in the first nine months of 2019 from the corresponding period of 2018, as the number of Idaho Power customers grew 2.6% over the past 12 months.
Notably, focus on cost control has aided the company to keep its rates lower than the national average. Low cost of energy makes it a favorable destination for investors, resulting in new large-load projects. It projects that nearly 11,000 new customers will move to IDACORP’s service area each year over the next two decades. Also, the company expects the peak-load demand to grow at an average of 50 megawatts per year. These developments will assist the company to generate steady earnings and cash flow, which will support its shareholder-friendly moves.
Utilities Continue to Share Profits
The defensive and domestic-focused utilities are known for their steady performance, and these mature companies share profits with their shareholders through dividend payouts and share buybacks. Duke Energy Corporation (DUK - Free Report) is a consistent payer of dividend and has increased quarterly dividend in July by 1.9% to 94.5 cents.
In October, another utility American Electric Power’s (AEP - Free Report) board of directors approved a quarterly dividend hike of 4.5% to 70 cents per share.
Zacks Rank & A Key Pick
IDACORP currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Spark Energy Inc. (SPKE - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Spark Energy has a dividend yield of 6.7%, which is better than the industry average of 3% . The company delivered a positive earnings surprise of 2.99% in the trailing four quarters. It reported a whopping positive earnings surprise of 3,200% in the third quarter.
In the past 12 months, shares of IDACORP have gained 6% compared with its industry's 11% rally.
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