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In this screen, we turned our attention to low-Beta stocks that have good records for dividend growth. We began our search with equities whose dividends have advanced at a compound annual rate of at least 7% over the last five years. We next narrowed the list to equities with Beta coefficients below 0.7, which signals that the equity tends to be less volatile than the market as a whole. We also set a minimum dividend yield of 3.2%, which is 110 basis points (100 basis points is equivalent to one percentage point) higher than the current median for all dividend-paying stocks under our review. 

The nine stocks that made the final cut are listed below in alphabetical order. In general, each of these equities appears worthy of further consideration by conservative, income-oriented investors seeking to identify new candidates for their portfolios. From the stocks that made this week’s cut, we are taking a closer look at Wisconsin Energy (WEC), which provides electricity or gas to over two million customers, mostly in its home state.

Wisconsin Energy Corp. began 2014 with 1.128 million electric and 1.080 million gas customers. It also operates a nonutility business, We Power, that owns and operates four generation plants that are leased to Wisconsin Energy. Coal is the company’s primary generating source, producing 54% of its 2013 electricity requirements, while purchased power accounted for another 33%. As with other utilities, the regulatory climate can exert a big influence on performance. In this regard, the company appears well situated, with Wisconsin offering a generally favorable operating environment. The near-term earnings outlook at Wisconsin Energy is solid, but unspectacular. Unusually mild weather hampered utility operations over the summer, but earnings should still edge higher.

The big news at Wisconsin Energy is the pending purchase of Integrys Energy (TEG) for about $5.5 billion in cash and stock. The deal, which was announced in late June, would more than double the customer base, bringing in another 500,000 electric and 1.7 million gas accounts, while also expanding WEC’s geographic reach. Like WEC, Integrys has a sizable presence in Wisconsin, but also serves markets in Michigan, Minnesota, and Illinois. The acquisition is not expected to close until about mid-2015, but should be accretive to Wisconsin Energy’s earnings in the first year after that. Notably, our outlook for another low single-digit profit increase in 2015 excludes any contributions from Integrys, though it does factor in merger-related costs leading up to the completion of the deal. 

As would be imagined considering its presence in this screen, Wisconsin Energy stock will likely have the most appeal for income-oriented accounts. The recent yield of 3.8%, though only about average for a utility, is more than 150 basis points above the median for all dividend-paying equities in the Value Line universe. Too, management aims to increase the payout at a 7%-8% annual rate between now and the closing of the Integrys transaction. At that point, the company anticipates hiking the distribution further. As it stands, Wisconsin Energy will likely pay out about 60% of its earnings this year, but aims to lift this ratio to 65%-70% upon completion of the deal. 

Like most electric utilities, appreciation potential to 2017-2019 is limited, meaning investors seeking big share-price gains will likely need to look elsewhere, and take a greater degree of risk, to achieve this objective. 

 

Company Name

Industry

Ticker Symbol

Beta

Dividend Growth 5-Year

Div'd Yield

Annaly Capital Mgmt.

REIT

NLY

0.55

10

10.62

Duke Energy

UTIL EAST

DUK

0.6

11.5

4.33

Gen'l Mills

FOOD

GIS

0.6

11.5

3.27

McDonald's Corp.

RESTAURANT

MCD

0.6

15.5

3.61

Reynolds American

TOBACCO

RAI

0.65

8.5

4.64

Rogers Communications

DIVERSIFIED

RCIB.TO

0.45

26

4.34

Shaw Commun. 'B'

CABLETV

SJRB.TO

0.55

15

4.06

TELUS Corporation

TELE SERVICE

T.TO

0.5

9.5

4.27

Wisconsin Energy

UTIL CENTRAL

WEC

0.65

19.5

3.85

 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.