Here's Why Black Hills Corporation Is a No-Brainer Dividend Stock

Utilities are not particularly exciting businesses, but they do tend to be fairly reliable, given that energy is vital to modern day life. Black Hills Corporation (BKH -0.63%) is the epitome of reliability, particularly when you examine its dividend. But here's a deeper dive into why this regulated utility is a no-brainer dividend stock.

1. Year after year

Black Hills has increased its dividend annually for 53 consecutive years, making it a Dividend King. It is one of only six utilities that have increased their dividends for that long. Of those six, most of them are water utilities, so Black Hills is one of the only electric utilities with this kind of track record. It is also one of the highest yielding of this elite group (more on the dividend yield in a moment). You don't achieve a dividend record like that by accident.

BKH Dividend Per Share (Annual) data by YCharts

But Black Hills' dividend success really comes into focus when you compare it to some of its larger peers. Utility giants Duke Energy (DUK -1.33%), Dominion Energy (D -1.02%), and American Electric Power (AEP -1.84%) all have more name recognition, but they have all ended up cutting their dividends at some point in the not-so-distant past, as the chart above shows. 

BKH Dividend Per Share (Annual) data by YCharts

But this chart highlights what can happen when a company's dividend chugs higher and higher, year after year. Over time, Black Hills has trounced its much larger peers on the dividend growth front.

2. Hitting 5% again and again (sort of)

But what does slow and steady actually mean? In the case of Black Hills, the dividend has increased 5% over the past year, and an annualized 5% over the past three years. And that same 5% a year over the past five years. And, imagine that, 5% over the past 10 years, too. That's a shocking amount of regularity.

Data source: Black Hills Corporation, calculations author.

To be fair, as the table shows, growth has picked up since 2017. That lifted the annualized figures over the past decade, given the much lower dividend growth between 2012 and 2016. But the current goal for the company is for long-term earnings growth of between 4% and 6% a year and a dividend that generally increases in line with earnings. So the recent dividend results are, at least for now, right in line with current targets.

3. Relatively attractive

What's interesting about Black Hills right now, meanwhile, is that the dividend yield is near its highest levels of the past decade. That suggests that the stock is attractive today, historically speaking. That's particularly true given the company's steady annual dividend increases over the past five decades.

BKH Dividend Yield data by YCharts

To be fair, the yield has been much higher in the past. For example, during the Great Recession the yield was more than twice what it is today. So investors that want to buy deeply discounted dividend stocks might not find the current yield attractive. But for investors simply looking to own good companies at fair prices, the 4%+ yield on offer right now seems like a solid risk/reward trade-off.

Not perfect, but not bad

One of the reasons why Black Hills' yield is so high right now is that 2023 is going to be a year of debt reduction, which will mean less capital investment activity. Investors aren't so happy with that. But the plan is to spend more than normal in 2024, which is likely to be needed given that the utility's 5.8% customer growth rate over the past five years is more than double the national average. That strong customer growth, meanwhile, suggests that earnings and dividend growth will continue to head reliably higher over the long term, and makes the current price drop look like a good time to jump aboard for more conservative dividend investors.