Tag Archives: NYSE:ITC

2 High Growth Dividend Stocks for your Long-Term Portfolio

One year ago, it would have been difficult to find stocks at a value. After the market decline, there are more investment opportunities. Specifically, there are two high growth dividend stocks I want to bring to your attention: ITC Holdings Corp. (NYSE:ITC) and Amgen, Inc. (NASDAQ:AMGN). Both have increased dividends for at least 5 years in a row.

A High Growth Utility

In its first decade of operations, ITC Holdings has successfully acquired, integrated and improved the reliability of the transmission businesses.

Transmission investment needs are projected to require $120-160B of investment per decade through to 2030, and ITC Holdings is filling a part of that need. It is focused on improving reliability, reducing cost of power, and meeting new system needs.

ITC Holdings’ 5-year plan until 2018 forecasts operating earnings per share to grow at a compound annual growth rate (CAGR) of 11-13%, cash from operations to grow at a CAGR of roughly 10%, and dividends to grow at a CAGR of 10-15%. In August, the utility raised its quarterly dividend by 15.4%. That marks its 11th year of dividend increases. In the previous two years, it increased dividends by 12-15%, marking itself as a high growth dividend stock.

With a price of around $32.50 per share, ITC Holdings is trading at a price-to-earnings ratio (P/E) of 16, and yields 2.3%. It normally traded at a P/E of 21, so it wouldn’t be farfetched for it to trade at a P/E of 18, implying it should trade around $37.50. So, for a quality utility with a S&P credit rating of A- that’s discounted by 13%, ITC Holdings is priced at a value today.
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Which Utilities to Buy On The Utilities Dip?

I notice some utilities have dipped as much as 20% from their 52-week highs. The dip maybe a rotation of funds out of the typically slower growth utilities sector for the purpose of profit-taking, or maybe investors are worried that interest rate hikes will cause the typical high-yielding utilities to dip further.

Because of the dip, I reviewed the 30 utilities in The Utilities Select Sector SPDR Fund (NYSEARCA:XLU) to see if there are treasures to be found. I filtered down to one utility that has had stable, growing earnings for more than a decade.

Southern Co, a Stable Utility with 5% Yield

Here, I present Southern Co (NYSE:SO), which has a S&P Credit Rating of A, sustainable debt levels, and is trading close to a price-to-earnings ratio (P/E) of 15 priced around $43 per share today.

Southern Co. fundamental analysis graph

I believe it’s fairly priced today, hitting the orange earnings line. The blue normal P/E line indicates that it has historically traded at a P/E of 16.

Since 2005, the company has increased dividends by 3-4% per year. I’d say that’s keeping pace with inflation. With a juicy yield of 5%, and growing say at 3% going forward, it should keep pace with general market returns of 7%.

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