How to Give Your Portfolio a Big Raise
One of the great benefits of subscribing to Investing Daily’s diverse array of investment newsletters is that you get a number of opportunities to pose questions directly to the analysts of each publication.
There probably aren’t too many newsletters out there whose editors make the effort to follow up with their subscribers, whether it’s by phone, email, or comment thread.
Beyond that, many of our newsletters offer a monthly text-based Live Web Chat, where subscribers type in their questions and we attempt to bash out answers to as many as possible during the allotted time.
From our perspective, live chats are a mental sprint and, therefore, a bit draining at times. But we also benefit from it ourselves. That’s because subscribers’ questions can actually be a fount of editorial ideas in their own right.
In fact, during this week’s Live Web Chat for Utility Forecaster, one of our subscribers was interested in learning where to find Wall Street’s consensus analyst forecasts for dividends per share.
In a cursory review of some of the main financial-data aggregators, we saw that while some data regarding analyst estimates are freely available online, the only dividend forecasts available were a quarter out, at most.
Thankfully, our trusty Bloomberg terminal goes far deeper than that. We can actually view analyst estimates for dividends for as many years out as they’ve projected.
Of course, our publisher pays a pretty penny for Bloomberg access, which would be heartbreakingly expensive for the average retail investor. Indeed, the terminal is practically a salaried employee.
Fortunately, we can gather and analyze this data, and then share it with you.
The Paycheck Power Booster
To that end, I constructed a screen for the U.S. electric utility space to determine each company’s projected dividend growth, as well as its relative valuation, and consensus target price.
Although I do have a tendency to make things more complicated than necessary, I think it’s important to go beyond the simple question of who has the highest projected dividend growth. Ideally, I’m hoping to find a utility that has above-average projected dividend growth while also trading at a discount to its peers.
Before digging into the data, there are a few limitations of which you should be aware.
The 40 U.S. electric utilities for which there are dividend forecasts are tracked by different numbers of analysts. Some are tracked by as few as two, while the utility giants are tracked by as many as 24—the average across the sector is 14.
In general, our assumption is that a consensus forecast’s validity is at least partly a function of the number of analysts tracking the stock. In other words, the more, the merrier.
And while we can see individual dividend per share estimates out to 2022 for some companies, there are usually only one or two analysts who make projections out that far. On a systematic basis, Bloomberg’s screener only lets us collect dividend per share estimates out through 2018, which turns out to be a pretty reasonable limitation.
Okay, let’s see if the data reveal any surprises.
By far, the utility with the strongest projected dividend growth is NextEra Energy Inc. (NYSE: NEE), whose payout is forecast to rise a total of 27.7% over the next two fiscal years, or about 13.1% annually.
If reality comports with these forecasts, then that means NextEra’s quarterly payout will rise from $3.48 per share annualized in 2016 to $4.45 per share annualized by 2018.
NextEra’s strong projected dividend growth is due to the fact that it has one of the best earnings-growth trajectories in the sector, with earnings per share (EPS) forecast to grow 6.8% annually over the next five years.
Consequently, the Florida-based utility giant also enjoys the most bullish analyst sentiment in the sector, with 18 “buys,” three “holds,” and no “sells.”
Even so, the sector-wide correction that began over the summer has brought NextEra’s share price back down to Earth. The stock now trades at a slight discount to the average utility and in line with peers on a forward basis.
With a forward yield of 3.0%, NextEra’s stock probably won’t excite yield chasers. But if you like growth with your income, the consensus 12-month target price is $137.00, which suggests a potential return of 17.8% above the current share price. That’s one of the widest gulfs between the current share price and consensus target price in the sector.
Subscribers to Investing Daily’s Utility Forecaster get to learn about another company with strong dividend growth that trades at a more compelling valuation.