Xcel Energy Is A Stable Utility That Could Pay A Growing Dividend For Years To Come

Xcel Energy Inc XEL is likely to record continued increases in interest charges, depreciation and property taxes as well as higher O&M expenses through 2017, Argus’ Gary Hovis said in a report. He maintained a Buy rating on the company, with a price target of $48. The EPS estimate for 2017 has been reduced from $2.35 to $2.31.

Growing Dividend

“We view Xcel Energy as a stable and fully regulated utility that should be able to provide investors with growing dividend income as well as moderate share price appreciation over the next few years,” analyst Hovis wrote.

The company’s annualized dividend is currently at $1.36 per share, representing a yield of about 3.2 percent. This dividend yield “may be attractive to income-oriented investors,” Hovis noted, while estimating a dividend of $1.44 for 2017. Management is targeting long-term dividend growth of 4-5 percent per annum, and has established a long-term target payout ratio of 60-70 percent.

Addressing NT Pressures

“Like many electric utilities, Xcel is facing revenue pressure from customer conservation efforts, energy efficiency programs, and still soft economic activity in many service areas,” the analyst commented. He added, however, that the company had made significant progress to address these challenges.

Moreover, Xcel Energy had achieved operating margin expansion over the past couple of years due to lower coal and natural gas costs. The company should be able to generate EPS growth in the long term, and shareholders would likely benefit from an improving balance sheet, Hovis stated.

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