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By Bob Ciura, BarChart.com
Income investors value reliability and consistency, as well as high dividend yields. Some stocks provide a combination of these factors, such as the Dividend Champions — stocks that have raised their payouts for at least 25 years in a row.
These companies have proven that they can manage temporary downturns, including recessions and the recent pandemic, reasonably well and that they are able to maintain their dividend payouts even during such harsh times — which makes them valuable for those looking for a low-risk income stream.
These 3 Dividend Champions have above-market yields, and long-term dividend growth.
Eversource Energy (ES)
Eversource Energy is a diversified holding company with subsidiaries that provide regulated electric, gas, and water distribution service in the Northeast U.S. The company's utilities serve more than 4 million customers after acquiring NStar's Massachusetts utilities in 2012, Aquarion in 2017, and Columbia Gas in 2020. The company was formerly known as Northeast Utilities and changed its name to Eversource Energy in April 2015.
On May 1st, 2024, Eversource Energy released its first quarter 2024 results for the period ending March 31st, 2024. For the quarter, the company reported earnings of $521.8 million, an increase from $491.2 million in the same quarter of last year. The company reported earnings-per-share of $1.49 compared with earnings-per-share of $1.41 in the prior year.
Earnings from the Electric Transmission segment increased to $176.7 million, up from $155.1 million in the prior year, primarily due to a higher level of investment in Eversource’s electric transmission system needed to address system capacity growth and deliver clean energy resources for the region. Earnings from the Electric Distribution segment totaled $168.1 million, slightly up from $165.5 million in the prior-year quarter, and attributed to higher revenues from a base distribution rate increase for Eversource's Massachusetts electric business and from higher revenues associated with infrastructure investments in the distribution system.
Earnings from the Natural Gas Distribution segment improved significantly to $190.6 million, up from $170.3 million in the prior year, driven primarily by higher revenues associated with investments in our natural gas infrastructure and a base distribution rate increase.
Eversource Energy continues to progress towards its investment goal of $23.1 billion in various projects including transmission and electric distribution during the 2023 to 2027 timeframe. Notably, the company made history in the first quarter when Eversource and Ørsted’s South Fork Wind farm became the first operational commercial-scale offshore wind facility in the U.S., contributing towards the company’s plan to add 1,758 megawatts of offshore wind capacity through a joint venture by 2025.
The company’s earnings per share growth ambition remains on a pace of 5% to 7% compound annual rate from 2024 through 2027, consistent with its dividend growth expectations. The company expects its 2024 earnings in the band of $4.50 to $4.67 per share. ES has increased its dividend for 26 years.
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Arrow Financial (AROW)
Arrow Financial Corporation is a multi-bank holding company based in Glen Falls, New York. The company operates through two main subsidiary banks, the Glens Falls National Bank and Trust Company, and the Saratoga National Bank and Trust Company.
Arrow Financial Corporation is also the parent company of North Country Investment Advisers and Update Agency, an insurance agency. The company is a small cap with a market capitalization of just $391 million, and it produces about $140 million in annual revenue.
Arrow posted first quarter earnings on April 30th, 2024, and results were worse than expected, as Arrow continued its streak of relatively poor performances. Earnings-per-share came to 45 cents, which was two cents light of estimates. Net interest margin was better, but at 2.60%, still poor relative to the rest of the industry. Net interest income declined $1.6 million due to higher deposit costs, while noninterest income rose $1.2 million, and noninterest expense rose $1.7 million.
Arrow Financial Corporation’s only potential competitive advantage is the willingness to pursue small markets where its larger competitors (such as Wells Fargo or Bank of America) have no interest in operating. While this advantage may seem slim, it is clearly working – the company is one of few banks to have increased its dividend for 27 consecutive years.
Arrow Financial is also very recession resistant. Its earnings-per-share declined by just -5% during the 2007-2009 financial crisis while many other financial institutions were going out of business.
Arrow Financial has increased its dividend for 27 consecutive years and is a member of the Dividend Champions list, as it is too small to be considered a Dividend Aristocrat.
Target Corporation (TGT)
Target was founded in 1902 and after a failed bid to expand into Canada, has operations solely in the U.S. market. Its business consists of about 1,850 big box stores, which offer general merchandise and food, as well as serving as distribution points for the company’s growing e-commerce business. Target and should produce about $107 billion in total revenue this year.
Target posted first quarter earnings on May 22nd, 2024, and results were weaker than expected, along with a reduction in guidance for the year, both of which saw the stock punished after the report. Adjusted earnings-per-share came to $2.03 in Q1, which was three cents light of estimates. Revenue was also down 3.1% to $24.53 billion, which met estimates.
Comparable sales fell 3.7%, which met expectations, and was the cause of the consolidated top line decline. Inventory fell 7% year-over-year, which is a good development for margins and cash flow. The company also noted that despite the fall in total inventory, in-stock levels were better than last year. Operating margin was 5.3% of revenue, up fractionally from 5.2% a year ago. Gross margins were 27.7% of revenue, up 140 basis points year-over-year.
This was attributable to cost improvements and lower promotional markdown rates, combined with favorable mix of sales. The company slightly lowered its guidance for this year, but our prior estimate is still within the guidance range, and we’ve therefore left it unchanged at $9.35 in earnings-per-share.
Target’s competitive advantage comes from its everyday low prices on attractive merchandise in its guest-friendly stores. Target is not recession-proof, as consumers tend to curtail their consumption during recessions. However, it is much more resilient than most retail stocks in such periods.
Target has grown its dividend for more than five decades. The payout ratio is now 47% of earnings for this year, which indicates a safe dividend. TGT stock yields 2.9%.
Disclosure: No positions in any stocks mentioned
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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