If you are looking for American-made dividend stocks, you can't do much better than buying U.S. utilities. Companies like NextEra Energy (NEE 1.42%), Black Hills (BKH 0.90%), and American Electric Power (AEP 1.07%) are built on regional and regulated U.S. monopolies. Each one of these American high-yield stocks has a different story to tell. Here's a quick look at why you might want to buy each one.
1. NextEra Energy is all about dividend growth
The average utility stock is yielding around 2.9% today. NextEra's dividend yield is roughly 3%. So, on that front, NextEra is about average.
Where it shines is the 10% annualized dividend growth it has achieved over the past decade. Management expects to keep growing the payout at around 10% a year for at least the next couple of years, too. There's no reason to believe it can't continue at that rate given the business that backs the dividend.
The foundation of NextEra's business is its regulated utility assets in Florida. The state has long benefited from immigration. This alone would be a good business, but it gets better because NextEra has layered a renewable power operation on top.
There is a long runway for further growth in the rapidly expanding clean energy sector as the world continues to shift toward energy options that produce less carbon. The utility is already one of the largest solar and wind companies on the planet, which gives it the scale to match just about any competitor. If you like to own innovative U.S. companies, NextEra has proved it is working at the cutting edge of the power sector.
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2. Black Hills is a very reliable dividend stock
For some investors, rapid dividend growth might take a back seat to dividend reliability. NextEra has increased its payout every year for roughly three decades. That's impressive, but it pales in comparison to Black Hills' streak of 55 years. In fact, it is one of the few regulated utilities that has achieved Dividend King status.
Now add in a well-above-peers dividend yield of 4.6%, and conservative investors trying to maximize the income they generate should be highly attracted to this U.S.-focused utility stock.
One of the reasons for the relatively high yield is that Black Hills is kind of small, with a market cap of only around $4 billion. NextEra Energy, for comparison, has a $150 billion market cap.
But the markets Black Hills serves with electricity and natural gas in Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming are growing at around three times the rate of the U.S. population. The company expects that to allow it to grow earnings between 4% and 6% a year for the foreseeable future. Dividends are likely to rise by a similar amount.
While Black Hills is not as exciting as NextEra Energy, there's a lot to be said for a high yield that grows slowly and steadily over time if maximizing current income is your goal.
3. American Electric Power is stepping up its growth plans
American Electric Power's yield is around 3.6%. Size wise, its $55 billion market cap falls between giant NextEra and tiny Black Hills. It is really a run-of-the-mill utility and has a reasonable, but not impressive, 16-year dividend streak going. So why pick AEP, as it is more commonly known?
The big reason is that AEP is stepping up its investment plans. It currently has a five-year capital investment plan of around $54 billion, which is just about the size of the company. It believes that figure could even go another $10 billion higher if things work out well.
Driving this spending is the expectation that electricity demand will rise by 55% by the end of the decade, which is a huge increase in a very short period of time. Since utilities increase earnings by spending to support rising demand, it appears like AEP could be on the cusp of a growth uptick.
While AEP is a bit more speculative than Black Hills, its regulated spending is likely to prove more reliable than NextEra's growth plans in clean energy, which is an unregulated business. The call from AEP is for 6% to 8% earnings growth for the foreseeable future.
Attractive utility dividends and American stocks
If you are looking for American-made dividends to power your income portfolio, you should be looking at U.S. utilities. There are a lot of options to consider, but the trio here are standouts. NextEra Energy is a dividend-growth stalwart. Black Hills is an ultra-reliable dividend payer, highlighted by its status as a Dividend King. And AEP is gearing up in a big way to serve increasing demand, and that should help it become a faster growing utility company.
