Bear markets are a test for investors, as high levels of fear can lead to harmful short-term thoughts. The bear is still with us, but it’s not too late to start thinking about the long term. Utility Dominion Energy (D 0.81%) it is a good option for dividend growth oriented investors. Even Consolidated Edison (AND 0.80%) it is appropriate for investors who have a security mindset.
The reset and the return to growth
Dominion Energy cut its dividend in 2020 after selling a large chunk of its business (pipelines). Berkshire Hathaway. It was the latest step in the company’s effort to shed its unregulated business segments and become a fully regulated utility business, not a result of the coronavirus pandemic. That timing was just a coincidence. Now, after the restoration, the utility company focuses on investing in its own resources to ensure the reliability of the system. An effort that also helps justify the rate hikes to regulators.
The numbers are sizable, with a $ 37 billion capital investment plan for about the next five years. About 85% of that spending is on clean energy, and 75% should go directly into the tariffs without having to get approval. In other words, there is a good deal of clarity for the future in Dominion right now.
This is why management is so confident that it will be able to increase profits by 6.5% annually until at least 2026. It might not seem like a huge number, but for a utility it’s pretty rapid growth. The dividend, meanwhile, is expected to expand at an annualized clip of 6% per year, just behind earnings. Again, it might not sound huge, but it’s a solid number for a utility. Notably, all that spending is expected to continue apace, regardless of what’s happening on Wall Street. Dividend Growth Investors looking to add a solid foundation investment to their portfolio should take a close look at Dominion.
2. As boring as it gets boring
Utility Consolidated Edison is at the other end of the spectrum here, with nearly five decades of annual dividend increases behind it and a 10-year annualized dividend growth rate of just under 3%. This is a slow and steady dividend turtle, but it might be fine for you if you are looking for reliable dividends.
A notable part of the puzzle here is that ConEd, as it’s colloquially known, operates in and around New York City. (Dominion, by comparison, operates in 13 states.) The Big Apple is a major trading center that has historically seen steady demand and driven ConEd’s slow and steady dividend growth. But the most notable story right now is that the utility for electricity and natural gas only comes through energy costs for customers. What sustains its earnings are the costs associated with reliable energy transport. The ups and downs of the economy can impact electricity demand, but it doesn’t change how much a customer pays each month to be connected to the grid. The cost of this increases reliably as ConEd invests in their business.
Right now, ConEd is planning to spend around $ 15 billion over the next three years, including 2022. This is unlikely to lead to the kind of earnings and dividend growth Dominion will produce, but it should still provide this turtle. enough growth to keep its dividend streak alive. Which, for a prudent income investor focused on creating a reliable income stream, is what is likely to be most important. ConEd is, ultimately, a boring type of fundamental investment. It’s the kind that will keep you safe in a bear market – note that stocks have risen 11% so far in 2022.
That price appreciation pushed the stock to a premium valuation, so you’ll pay full price for dividend consistency here. But don’t let the relative outperformance sour you on ConEd. If dividends and safety (there’s no way to know when the bear market bottom has been hit) are important to you, you might want to consider adding it to your portfolio even at today’s relatively expensive prices.
Look at the passive income stream
Both Dominion and Consolidated Edison are attractive income options for different types of dividend investors. That said, both Dominion and ConEd are producing a generous 3.4% around today. It might not seem like a huge number, but when you compare that to the 1.5% dividend yield you’d get from a S&P 500 Index bottom, well, you can see why these two utilities might be interesting today. And with no way to tell when this bear will end, both of them can also add important diversification to your portfolio.
Reuben Gregg Brewer has positions in Dominion Energy, Inc. The Motley Fool has positions and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Dominion Energy, Inc and recommends the following options: long January 2023 $ 200 call on Berkshire Hathaway (B shares), short January 2023 $ 200 put on Berkshire Hathaway (B shares) and short January 2023 $ 265 call on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.