Portfolio Update
The FiveTwenty portfolio received $65.42 in dividends in the past week. K, MMM, and ORI paid their quarterly dividends during the week.
| Past Week Dividend | $65.42 |
| Current Quarter Dividend (Q2 2021) | $363.83 |
| LifeTime Dividend | $476.87 |
| Estimated Annual Dividend | $1,882.14 |
The capital allocation for the week of 06/20/2021 to 06/26/2021 will be used to establish a position in Black Hills Corp. (NYSE: BKH)
BKH – Company Profile
Black Hills Corp (BKH) operates as an electric and natural gas utilities company in the United States. The company operates through four segments: Electric Utilities, Gas Utilities, Power Generation, and Mining. The Electric and Gas Utilities segments serve customers in Arkansas, Colorado, Iowa, Kansas, Nebraska, South Dakota, and Wyoming. Official Site | Wikipedia
| Dividend Streak | 51 years |
| Yield | 3.30% |
| Payout Ratio | 60.60% |
| P/E | 18.37 |
Financials
Does BKH have the financial means to sustain and raise its dividend going forward?
Over the last decade, BHK has steadily grown revenue from $1.3 billion in 2011 to $1.7 billion in 2020. Net earnings grew from $50 million to $228 million over the same period. However, net earnings were much more volatile over the period. Net earnings for 2015 and 2016 saw significant adverse impacts due to non-cash asset impairment charges stemming from BHK’s decision to exit the conventional oil and gas exploration business and divest non-core oil and gas assets.
In the last 10 years, BHK’s GAAP EPS reflected the same volatility as GAAP net earnings. On the other hand adjusted EPS grew steadily from $2.09 in 2012 to $3.73 in 2020.
The average dividend per share growth rate was 4.30% per year in the past 10 years and 6.20% per year in the past 3 years. (per GuruFocus) BHK has been able to increase the rate of growth for its dividends in the last 5 year to above 6% while at the same time maintaining a dividend payout ratio below 60%.
BHK in 2021 and beyond
BHK posted solid Q1 2021 results. Adjusted EPS for the quarter were $1.54 compared to $1.59 for Q1 2020. A $0.11 per share weather benefit was overshadowed by a $0.15 per share adverse impact from Winter Storm Uri and a $0.2 per share negative impact from a higher share count due to equity issuance in February 2020.
During the earnings call the company reaffirmed its 2021 and 2022 earnings guidance. BHK expects adjusted EPS in the $3.80 to $4.00 range for 2021, and in the $3.95 to $4.15 range for 2022. Additionally, the company is targeting long term EPS growth of 5% to 7%, resulting in a 5%+ dividend growth rate while being able to maintain a payout ratio of 50-60%.
Valuation
Are we paying too much for BKH at the current share price?
In the last 10 years, BKH’s PE ratio saw a low of 11.64 and a high of 246.46, with a median value of 19.77. (per GuruFocus) The current TTM P/E ratio of 18.37 is slightly below the historical median.
The current share price of $67.59 is 0.8% below the 50-day moving average and 8.6% above the 200-day moving average. Additionally, the share price is near the 80th percentile of the 52 week trading range.
At the current share price, the share price is still trading 21% below its pre-pandemic peak of $85.53. Furthermore, it is still in line with historical valuations and we believe it is a fair entry point.
Yield
How does the current dividend yield for BKH compare to historical values?
In the last 10 years, the dividend yield for BKH has been in a range of 2.4% to 5.09%, with a median of 3.17%. (per GuruFocus) The current TTM yield of 3.30% is above the historical median.
With the current yield being above the historical median, even if just slightly, BKH offers a good entry point for establishing a position.
Thesis
Why are we adding BHK to the FiveTwenty portfolio?
BHK has a solid track record of increasing dividend payouts. In addition, the company has posted a solid dividend growth rate over the last decade. Furthermore, the company grew its dividends by better than 6% over the last five years.
With a current dividend payout ratio of below 60% and a stable and predictable business, we believe that BKH will be able to continue be a reliable source of growing dividend income.
Additional Research
Photo by Matteo Grassi on Unsplash
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