This energy company is raising its dividend to $0.73 per share as of March 1. The current annual dividend yield is 3.07%, paid quarterly.
WEC Energy Group, Inc. (WEC)
From Contrarian Outlook
WEC Energy Defies conventional “Wisdom” on utilities and rates. Utilities are a no-brainer buy in uncertain times. But that stability usually comes at a cost: lower returns. Not so for WEC, which serves 4.6 million electricity and natural gas customers in Wisconsin, Illinois, Michigan and Minnesota. The stock has returned 272% in the last decade, crushing the benchmark Utilities Select Sector SPDR ETF (XLU):
The knock on utilities is that they suffer when rates rise because higher rates increase the yields on investments that guarantee your principal, such as CDs and 10-year Treasuries. That draws away the conservative folks who usually buy utilities. That sounds like a logical argument, but it doesn’t hold up. During the last rate-hike cycle, from late December 2015 to late December 2019, WEC—and the broader utility sector, as seen through the performance of XLU—did just fine:
The reason is simple: the yield on WEC—which was 3.7% in December 2015 and is now around 3%—is far above the payouts you’d get from a CD or a Treasury note.
And that’s just the stock’s current yield. In the last two decades, WEC has hiked its payout by 628%. If you’d bought then, you’d be yielding 26% on your original buy!
This is the only safe way to get a dividend that big. And WEC’s sterling dividend record continues. It recently announced a 7.4% hike for the first quarter of 2022, powered by its strong business. Since the end of March 2020, trailing-12-month revenue has risen 11% as the company successfully navigated the shift in demand from businesses to residences and back again as lockdowns came and went. As well, the company’s last 12 months of payouts are just 64% of earnings—just below its stated target range of 65% to 70%. That’s safe for a utility with steady, predictable income.
Finally, a look at the stock’s five-year beta rating—a measure of volatility—gives us another reason why it would be foolish to dump WEC for a CD or a Treasury. Right now, that figure is 0.25, making it 75% less volatile than the S&P 500.
So, we’re left with a company whose yield more than doubles that of the typical S&P 500 stock, with a soaring dividend, very low volatility and a history of gains when rates rise. That’s an attractive combination in today’s unhinged market.
Brett Owens, Contrarian Outlook, BNK Invest Inc., 500 North Broadway, Suite 265, Jericho, NY 11753 USA, 516-620-4294, February 1, 2022