Minneapolis, MN based utility Xcel Energy Inc. (XEL) announced that its board of directors has approved of an increase in the quarterly dividend rate by 2 cents. The revised quarterly dividend will be 32 cents, payable on Apr 20, 2015, to shareholders of record at the close of business on Mar 17, 2015.

Due to this increase, the annualized dividend amounts to $1.28 per share, up 6.7% from the prior rate. The current annualized dividend yield is 3.5%, higher than the industry average of 2.14%. The increase in distributable income speaks of the company’s successfully executed investment growth strategy.

The Xcel Energy management understands the importance of sharing profits with its stakeholders. The company has fixed a long-term dividend payout target of 60–70%, which we believe is on par with other operators in the utility space. In addition, the company aims to increase its dividend annually in the range of 5–7%.

Xcel Energy’s diverse generation mix and focus on producing power from renewable sources will help the company to lower carbon emission. The ongoing improvement in the economic condition in its service territories is also driving sales.

Xcel Energy’s earnings have surpassed the Zacks Consensus Estimate in two out of the last four quarters, with a positive average earnings surprise of 2.47%. The company aims to increase its earnings annually in the range of 4–6%.

Cash flow from operating activities at the end of the first nine months of 2014 was in excess of $2 billion. Increased electricity rates in its service territories have worked in favor of the company. We expect Xcel Energy’s strong cash flow generating capability (generated cash flow from operations of more than $2 billion annually in the past three years) to help fund incremental dividends.

Xcel Energy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the space include Huaneng Power International, Inc. (HNP), Pinnacle West Capital Corporation (PNW) and Consolidated Edison, Inc. (ED). Huaneng Power sports a Zacks Rank #1 (Strong Buy), while Pinnacle West Capital and Consolidated Edison, Inc. have a Zacks Rank #2 (Buy).
 

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