PPL Corp: Boring Utility Is a High-Yield Cash Cow
January 18, 2021
PPL Stock Has Paid Quarterly Dividends for 300 Consecutive Quarters
The Great Recession and the coronavirus pandemic are two big events that allowed the U.S. Federal Reserve and other central banks around the world to step in and unleash unprecedented fiscal and monetary policies.
Artificially lowering interest rates to essentially zero makes it cheap to borrow money and juice the economy—or at least that’s the premise. Helping fuel the economy comes at a cost though: low interest rates have decimated retirement portfolios.
The fact is, interest rates have been kept artificially low since 2008, which means the Fed has effectively removed the “income” from fixed-income assets like Treasuries, bonds, and certificates of deposit (CDs). That’s terrible news for anyone who was looking for their fixed-income investments to help see them through retirement.
In December 2020, the Fed maintained its target for the federal funds rate at a range of zero percent to 0.25%. Right now, the 10-year Treasury rate is just 1.15%. So if you have $1.0 million in your retirement savings account, you’ll earn a princely $15,000 annually. The average bank savings rate is even lower, at 0.9%.
With today’s rock-bottom interest rates pummeling portfolios, where are investors to turn? One of the best places for income-starved investors to look is utility stocks. That includes companies that provide electricity, natural gas, and water to residential, industrial, commercial, and government customers.
Money might be tight in an economic downturn, but people still need to heat their homes and keep their lights on. And with the pandemic, self-quarantined Americans are basking in the glow of their TVs and computer screens. And there’s no fear that the government will cut its spending on utilities.
Utility stocks might be boring, but because the rates the companies charge are either regulated or contractually guaranteed, they bring in steady revenue. Thanks to this reliable, low-risk income stream, utility stocks are able to pay out high dividends.
To investors, one of the best utility companies out there is PPL Corp (NYSE:PPL).
About PPL Corp
A Fortune 500 company, PPL is one of the largest regulated utility companies in the U.S., with a market cap of $21.9 billion.
The Allentown, PA-based company operates through three segments: Pennsylvania Regulated, Kentucky Regulated, and U.K. Regulated. Altogether, PPL serves more than 10 million utility customers. (Source: “2020 EEI Financial Conference,” PPL Corp, November 9, 2020.)
Thanks to its operational excellence, PPL has been able to steadily increase its rate base growth.
From 2011 to 2019, Pennsylvania Regulated increased its rate base at a compound annual growth rate (CAGR) of 12.2% from $3.0 to $7.6 billion, Kentucky Regulated increased its rate base at a CAGR of 6.1% from $6.5 to $10.4 billion, and U.K. Regulated increased its rate base at a CAGR of 5.7% from $6.6 to $10.3 billion.
The company owns about 219,000 miles of electric lines, but it’s always enhancing its energy grid. To that end, PPL Corp is investing about $14.0 billion over the next five years in new infrastructure and technology.
PPL on Track to Achieve 2020 Earnings Guidance
Despite the ongoing challenges associated with the pandemic and the milder weather in the first half of 2020, PPL was able to report encouraging third-quarter results in November. In the report, management said the company was on track to achieve the low end of its earnings guidance for 2020, in the range of $2.40 to $2.60 per share. (Source: “PPL Corporation Reports Third-Quarter 2020 Earnings,” PPL Corp, November 5, 2020.)
PPL reported third-quarter 2020 earnings of $281.0 million, or $0.37 per share, compared to third-quarter 2019 earnings of $475.0 million, or $0.65 per share.
The company’s earnings in the first nine months of 2020 were $1.2 billion, or $1.53 per share, compared to $1.4 billion, or $1.89 per share, in the first nine months of 2019.
In late November, the company declared a quarterly dividend of $0.415 per share. With that dividend rate, PPL stock’s current yield is 5.8%.
This represents the 300th consecutive quarterly dividend that PPL has paid out. Moreover, the company has raised its annual dividend for 19 consecutive years. (Source: “Dividend History,” PPL Corp, last accessed January 15, 2021.)
PPL stock has not missed paying a quarterly dividend since 1946, and that enviable income streak is likely to continue. As noted above, the company expects its full-year earnings to be in the range of $2.40 to $2.60 per share. Its annual dividend rate is $1.66 per share, for a payout ratio of 82.5%.
PPL Corp has a history of increasing its dividend in the second quarter of the year.
If you’re looking for a steady, passive income stream that outpaces inflation, utility stocks could be the place to be. And within that sector, PPL stock is one of the best.
