Utilities aren’t exciting, but they provide a basic necessity of modern life. And this one has an incredible dividend record.
Markets that go up have always been followed by markets that go down. It’s the typical bull/bear cycle that investors have to deal with.
Right now, the market is up near historic highs, which is why I’m happy to own some boring necessity stocks. One of my favorites is utility Black Hills (BKH 0.92%). Here’s why I own this high-yield stock and why you might want to buy it, too.
What does Black Hills do?
With a market cap of just $4 billion or so, Black Hills is not a particularly large utility. In fact, it is dwarfed by industry giant NextEra Energy (NEE 0.94%), which has a market cap of $160 billion. Compared to that, Black Hills is just a rounding error! Yet it still provides a necessity of modern life.
Image source: Getty Images.
The company has around 1.3 million natural gas and electric customers across parts of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Without the energy Black Hills supplies, these customers would be operating in the Dark Ages.
The business is regulated, so it has to get its rates and capital spending plans approved by the government. However, being regulated also means it has a monopoly in the regions it serves. Those 1.3 million customers have nowhere else to turn for their energy needs.
Black Hills is a bit of a tortoise, given the business, but with the market near all-time highs, I’m happy to have a few reliable tortoises in my portfolio. Because of its small size, however, many investors have never heard about Black Hills. This is too bad because it has handily outperformed the industry giants on one key metric: dividends.
Black Hills is a Dividend King
NextEra Energy, which most investors have heard of, has increased its dividend annually for 30 years. That’s a very impressive streak, but it pales in comparison to the 54 consecutive years of annual dividend increases that Black Hills has accumulated. It is one of the longest dividend streaks in the utility sector, making it a highly elite Dividend King.
Think about the last five decades: The list of bad times includes the pandemic, the Great Recession, the dot.com bust/recession, Black Monday, and the raging inflation and oil crisis of the 1970s.
And that’s just the highlight reel. There were smaller ups and downs on Wall Street and in the economy, too. Through it all, Black Hills continued to reward investors with annual dividend increases. That is the type of consistency I want to have in my income portfolio when the market is hovering at lofty levels.
BKH market cap; data by YCharts.
But there’s more to the story than just the dividend. For example, Black Hills’ customer base is growing nearly three times faster than the broader U.S. population. That should support solid growth as the utility invests to serve that expanding customer base.
To put some numbers on that, the five-year capital investment plan is $4.3 billion, which management expects to translate into earnings growth between 4% and 6% a year.
The dividend will likely track along with earnings growth, meaning roughly 5% dividend growth is the target. That’s a solid number for a utility and just happens to be the annualized rate of dividend growth Black Hills has achieved over the past decade. So basically, it expects to keep doing what it has done for years: supplying customers with reliable power, and investors with reliable dividend growth.
Black Hills is a boring and reliable dividend stock
I’m not going to brag to anyone about owning Black Hills; it isn’t that kind of stock. It is a foundational investment that I can comfortably own through good times and bad knowing that its essential service will always be in demand. Along the way, I can collect a lofty 4.5% dividend yield, one of the highest in the utility sector, backed by a growing dividend (for reference, NextEra’s yield is just around 2.6%).
If Wall Street hits the ceiling and a bear market comes along, I’m not going to lose any sleep owning Black Hills. If you are a conservative dividend investor, that will probably sound attractive to you, too.
Reuben Gregg Brewer has positions in Black Hills, Dominion Energy, and Southern Company. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Dominion Energy and Duke Energy. The Motley Fool has a disclosure policy.