There are six Dividend Kings in the Utility sector as of the time of this writing. On the whole, the Utilities are a bit overpriced. This is partly due to the fact that they are Dividend Kings, which tend to trade at a premium to their fair value. The other reason is that with inflation at its highest level in 40 years, the markets have moved towards defensive and inflation-protected sectors such as Consumer Staples, Health Care and Utilities.
When money is tight, people can put off discretionary items such as a new car, new furniture, or the latest iPhone. However, groceries, medical care, heat, and electricity are essential. Thus, utilities have very reliable revenue streams, and this allows them to pay consistent dividends. It is no surprise then, that we have six utilities among the 45 Dividend Kings. But only one is attractively priced right now: Black Hills Corporation [BKH].
Black Hills Corporation [BKH]
Here is the profile from Yahoo! Finance:
Black Hills Corporation, through its subsidiaries, operates as an electric and natural gas utility company in the United States. It operates in two segments, Electric Utilities and Gas Utilities. The Electric Utilities segment generates, transmits, and distributes electricity to approximately 218,000 electric utility customers in Colorado, Montana, South Dakota, and Wyoming; and owns and operates 1,481.5 megawatts of generation capacity and 8,892 miles of electric transmission and distribution lines. The Gas Utilities segment distributes natural gas to approximately 1,094,000 natural gas utility customers in Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming; owns and operates 4,732 miles of intrastate gas transmission pipelines; 41,644 miles of gas distribution mains and service lines; six natural gas storage sites; and approximately 50,000 horsepower of compression and 515 miles of gathering lines. The company also constructs and maintains gas infrastructure facilities for gas transportation customers; and provides appliance repair services to residential utility customers, as well as electrical system construction services to large industrial customers. In addition, it produces electric power through wind, natural gas, and coal-fired generating plants; and coal at its coal mine located near Gillette, Wyoming. The company was incorporated in 1941 and is headquartered in Rapid City, South Dakota.
Black Hills Corporation has a 50-year dividend increase streak going and there is no sign that they’re slowing down. This past week BKH climbed 7.7% in advance of their earnings announcement this Wednesday. Even with that upward move, the stock is still trading below pre-pandemic levels.
The Details
Data as of 2022-07-30
| Name | Black Hills Corp |
| Ticker | BKH |
| Website | Investor Relations |
| Sector | Utilities |
| Dividend Streak | 50 years |
| Last Price | $77.20 |
| Div Amt (quarterly) | $0.595 |
| Ann Dividend | $2.38 |
| Last Ann Div Inc | 5.3% |
| Dividend Yield | 3.1% |
| Payout Ratio (ttm) | 57.6% |
| Beta (5-yr monthly) | 0.49 |
| P/E Ratio (ttm) | 19.01 |
| Margin of Safety | 15% |
In the final six months of 2019, BKH traded in a very narrow range from $75 to $80. Such a narrow range for such a long period, suggests that BKH was fairly valued by the market at the time. There was a very pronounced move up to an all-time high of $87.12 just before the pandemic tanked the market in February of 2020, but let’s ignore that. Right now, BKH is smack dab in the middle of that range, at $77.20. Yet, 2.5 years have passed. Their earnings per share was $3.53 in 2019, $3.73 in 2020, $3.74 in 2021, and estimated to land around $4.08 in 2022. Their earnings never dropped, but the stock price certainly did, down to $48.07.
BKH stock has spent the last two and a half years making the steady climb back up. But now they’re earning 15% more than in 2019. I think they’re undervalued and may very well trade at all-time highs in a matter of months, possibly even weeks.
I have set up a market order this evening to purchase 13 shares of BKH on Monday.