If you have $1,000 to invest right now and want to hone in on a reliable dividend-paying utility stock, there are a lot of options. However, two utilities stand out from the pack for different reasons. Here's why dividend growth investors will like NextEra Energy (NEE -1.36%) and investors focused on dividend consistency will appreciate Black Hills (BKH -0.63%).
NextEra is growing its dividend quickly
The number that dividend growth investors will find most interesting at NextEra Energy is probably 10%. It's the rate of dividend growth that the utility has achieved over the trailing one-, three-, five-, and 10-year periods. management expects 10% growth this year as well. That's a pretty good pace for any company, but for a utility, it is extremely attractive.
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The ability to grow the dividend so quickly is backed by a company that's really two businesses in one. The core of NextEra's business is its regulated utility operations, which is largely composed of Florida Power & Light (around 70% of the company). Regulated utilities tend to grow slowly, but it is worth noting that NextEra has long benefited from increasing demand as more people move to the Sunshine State.
The remaining 30% of NextEra Energy is largely made up of its renewable power business. It happens to be one of the largest producers of solar and wind power in the world. This has been the utility's growth engine, and it should continue to be so, as management plans to roughly double the 34 gigawatts of capacity in this business by the end of 2026. In other words, more robust dividend growth looks highly likely in the future.
The 3.2% dividend yield isn't huge by utility standards, but if you are a dividend growth investor, this is the type of utility you'll want to have in your portfolio.
Black Hills has a dividend record that's hard to beat
Black Hills is one of just six utilities that have achieved Dividend King status, with 53 years of annual dividend increases behind it. It is the only one of the six that included electricity as a prominent portion of its business. The other five are either water utilities or natural gas utilities.
Black Hills is a regulated electric and natural gas utility. Oh, and it also happens to sport a historically high yield of roughly 5% today.
One of the big reasons to like Black Hills is that it operates in growing regions. Customer growth in the areas this relatively small utility serves is expanding by nearly three times the rate of U.S. population growth. Add in the transition toward clean energy, and there's every reason to believe that Black Hills' regulators will keep rewarding this fairly boring old utility with solid rate hikes as they approve the utility's capital investment plans.
To be fair, historical dividend growth here is roughly half the pace of what NextEra has achieved. But given the higher yield and impressive dividend streak, that shouldn't bother investors looking to maximize the income their portfolios generate. The high yield, meanwhile, is a result of rising interest rates and Black Hills spending 2023 focused on debt reduction (leading to reduced capital spending).
The next few years will likely see capital spending get back to a more normal historical rate. In the meantime, long-term investors can pick up this Dividend King while it looks like it is on sale.
Two solid options for different types of investors
If you are looking at NextEra Energy, you probably won't be interested in Black Hills, and vice versa. But that's the point of highlighting this pair of utilities that are at different ends of the dividend spectrum. NextEra Energy is a stock that dividend growth investors will like, and Black Hills is a high-yield utility that investors looking for dividend reliability will prefer. One will probably fulfill your dividend needs.
