9 Utilities Set To Raise Dividends (DUK, AWK, AWR, XEL, DTE, AEP, CEG, D, ETR, FE, NEE, PNW, PPL, PGN)

If you have seen one trend that has lasted in 2011 it is that companies are hiking their dividend payouts for their shareholders.  Many classic investment models are based almost entirely around dividend growth, and the utility sector is one of the more classic dividend-paying sectors for income investors.  It just so happens that these can also be considered in many cases as defensive investments due to a relatively predictable earnings stream and due to those high dividends.

Some of the more recent dividend hikes in the utility sector have been in shares of Duke Energy Corporation (NYSE: DUK), American Water Works Company, Inc. (NYSE: AWK), American States Water Company (NYSE: AWR), Xcel Energy Inc. (NYSE: XEL), and DTE Energy Co. (NYSE: DTE).  What we are trying to show you is that the trend of dividend hikes is not without precedent in utilities.

24/7 Wall St. is looking for utility dividend hike candidates after some recent hikes in the sector.  We have evaluated 9 large-cap or mid-cap dividend producing utility stocks for investors where you can expect a dividend hike in the coming months.  These include, in alphabetic order: American Electric Power Co., Inc. (NYSE: AEP), Constellation Energy Group, Inc. (NYSE: CEG), Dominion Resources, Inc. (NYSE: D), Entergy Corporation (NYSE: ETR), FirstEnergy Corp. (NYSE: FE), NextEra Energy, Inc. (NYSE: NEE), Pinnacle West Capital Corporation (NYSE: PNW), PPL Corporation (NYSE: PPL), and Progress Energy Inc. (NYSE: PGN).

Now that the Supreme Court has rejected some carbon-cutting measures, some additional drag has been removed from this sector that might have otherwise been victim to higher ten-year Treasury yields.  We would also like to note that we have tried to consider mergers in our analysis as this sector continues to consolidate.  Our basis is more of a standalone merger basis rather than solely due to mergers  into consideration here because we are looking for the companies which can grow their dividends based solely upon their own metrics.

American Electric Power Co., Inc. (NYSE: AEP) is perhaps our favorite utility and it was named as one of our ten stocks to own for the next decade.  Its shares recently traded at $38.18 and has a current dividend yield of 4.9%.  Its 52-week trading range is $30.34 to $38.99.  Thomson Reuters has estimates of $3.13 EPS for 2011 and $3.22 EPS for 2012.  AEP has had three straight quarters of a $0.46 dividend and this is likely to be grown in the months ahead.  The prior $0.42 quarterly dividend was only in place for two quarters before being raised.  The current pace comes to $1.84 per year.  Our take, look for $0.48 per quarter.  We are not looking for an equal hike this time around as earnings growth is only expected to be almost 3% next year.

Constellation Energy Group, Inc. (NYSE: CEG) is often treated as a controversial stock in the world of utilities.  While we said we are not taking M&A into consideration, it is in a pending deal with Excelon and we are still evaluating this on a standalone basis.  It recently traded at $37.70 and has a current dividend yield of 2.55%.  Its 52-week trading range is $27.24 to $37.87.  Thomson Reuters has estimates of $3.20 EPS for 2011 and $2.46 EPS for 2012.  Its dividend used to be far higher and has been $0.24 per quarter for about ten quarters in a row.  It is hard to know about the “when” but the “if” seems a shoe-in if it somehow is not merged.

Dominion Resources, Inc. (NYSE: D) recently traded at $48.61 and has a current dividend yield of almost 4.1%.  Its 52-week trading range is $36.98 to $49.07.  Thomson Reuters has estimates of $3.14 EPS for 2011 and $3.25 EPS for 2012.  The company has been in the habit of hiking payouts more than once a year if the last hike was a sign.  If no dividend hike is made in the fall, it could be announced late this year.  The current payout is $1.97 per year, leaving well more than $1.00 per share for operations ahead.

Entergy Corporation (NYSE: ETR) recently traded at $67.33 and has a current dividend yield of about 4.9%.  Its 52-week trading range is $63.94 to $78.06. Thomson Reuters has estimates of $6.58 EPS for 2011 and $6.14 EPS for 2012.  It has paid $0.83 per quarter for five quarters in a row now but it paid $0.75 per quarter for eleven straight quarters.  The current payout is only $3.32, leaving nearly $3.00 for this year’s earnings overage even though next year is expects to see contraction in the earnings.  It may mitigate some issues with a dividend hike and with close to a $12 billion dividend hike.

FirstEnergy Corp. (NYSE: FE) has been in dividend purgatory and it is getting hard to evaluate now with that Allegheny Energy, Inc. deal has closed.  Its stock recently traded at $44.09 and has a current dividend yield of just over 5%.  Its 52-week trading range is $32.62 to $45.80.  Thomson Reuters has estimates of $3.32 EPS for 2011 and $3.30 EPS for 2012.  The quarterly payout of $0.55 per share comes to $2.20 per year, which does already come to about two-thirds of its net income being paid out to shareholders.  Keep in mind that this was an $80 stock back in 2008, so perhaps it might sacrifice more income to pay holders. The consensus time periods pending that merger, which has past, was $0.598.  Stay tuned here.

NextEra Energy, Inc. (NYSE: NEE) is the former FPL and it recently closed at $57.69 and has a current dividend yield of 3.8%.  Its 52-week trading range is $46.97 to $58.98.  Thomson Reuters has estimates of $4.48 EPS for 2011 and $4.74 EPS for 2012.  The current dividend growth saw a large 10% gap and we have two more quarters to go if it retains that $0.55 payout that comes to $2.20 per year.  This is actually well within the earnings estimates for it to raise its dividend prematurely and this was a $70 stock before the recession.  We have also screened this one out as value before.

Pinnacle West Capital Corporation (NYSE: PNW) recently traded at $44.90 and has a current dividend yield of 4.7%.  Its 52-week trading range is $33.94 to $45.64.  Thomson Reuters has estimates of $3.09 EPS for 2011 and $3.39 EPS for 2012.  The company just recently disappointed us by maintaining its same $0.525 per quarter payout ($2.10 per year).  That rate has been the same since all the way back to 2006.  Its $4.9 billion market cap keeps this Arizona power company in the arena of deal-makers as well.  Sure, Arizona real estate is not on the up and up like it was and it had to over-commit.  That is why this was a $50 stock in 2007 before the bottom dropped out of the housing market.

PPL Corporation (NYSE: PPL) recently traded at $27.88 and has a current dividend yield of right at 5% for investors.  Its 52-week trading range is $23.38  to $28.02.  Thomson Reuters has estimates of $2.60 EPS for 2011 and $2.48 EPS for 2012, and it has paid $0.35 per quarter for six consecutive quarters and paid only $0.345 per quarter before then.  At issue is that huge new offering of a capital raise for it to close a U.K. acquisition.  We think a payment hike needs to come, but we also know that integration time and a capital raise of stock and debt can get in the way of dividend investor progress.  Keep in mind that this was a $50 stock in mid-2008 but its market cap today is about $16 billion.

Progress Energy Inc. (NYSE: PGN) recently traded at $48.57 and has a current dividend yield of 5.1%.  Its 52-week trading range is $36.82 to $49.03.  Thomson Reuters has estimates of $3.12 EPS for 2011 and $3.21 EPS for 2012.  The Duke Energy Corporation (NYSE: DUK) merger effectively has Progress as the target so we will pass on offering much more color here, other than that we have been expecting a payout hike for some time.

Again, mergers can change the outcome of dividends.  That is part of life.  Our analysis is taking these into consideration on a standalone basis.  It is possible that some of these will not hike their payouts, but we are close to certain that most of these are within the boundaries that can allow for dividend hikes in the coming weeks or months.

JON C. OGG