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Buy PPL for Dividend Growth
MALCOLM BERKO
Taking Stock
Published: April 26, 2018
Dear Mr. Berko: My husband and I are both 73 years old and in excellent health. Both of us retired 10 years ago from Monsanto, and we get a nice pension. We discovered your column about nine months ago. You don't write like other stock advisers. Your common sense and humor appeal to us. We don't own any stocks. All our cash ($535,000) is in certificates of deposit and savings because we're afraid the stocks will go down and we don't want to lose any money or income.
Both of us read your column about Southern Co. We didn't realize that there are utilities that pay over 5 percent, and that fact, along with the fact that Southern has increased its dividend payout every year for over 25 years, convinced us that we should buy 300 shares of Southern at $43.10. We're getting a 5.3 percent return. You explained that the price of Southern's stock will go up and down every year but that its dividend is solid. It sounded pretty safe to us because as long as Southern pays that good dividend, we will be happy with the stock, and assuming Southern continues to increase its dividend each year, we'll be even happier. If the stock price goes up or down, it won't matter to us because we are not looking to make a big score the way many people are.
You have opened our eyes with your column. Are there any other utility stocks that pay at least 5 percent and increase their dividends each year that you could recommend for us? Our neighbor owns stock in PPL Corp. and says it has increased its dividend every year. What can you tell us about this stock, and would you recommend it for us? We'd buy 400 shares. -- CG, Moline, Ill.
Dear CG: PPL Corp. (PPL-$28.06) traces its roots to Pennsylvania Power & Light Co., which was created in 1920 through the consolidation of eight small electric companies formed in the 1880s, including the Edison Electric Illuminating Co., which provided incandescent lighting to many small Pennsylvania cities. Many tiny independent power companies dotted the Pennsylvania landscape in the early 1900s, with 65 companies serving 88 communities in the area that PP&L would eventually serve. It was common in the late 1800s and early 1900s for smaller, regional utilities to merge with larger providers. So, in June 1920, PP&L was formed as a holding company to combine numerous merger operations under a single roof. Today PPL provides power to 1.4 million customers in eastern and central Pennsylvania, 1.2 million customers in Kentucky (it acquired Kentucky Utilities and Louisville Gas & Electric Co. in November 2010) and 7.8 million customers in the U.K., where PPL has a power distribution subsidiary.
Yes, PPL has a long record of yearly dividend increases. During the past 20 years, the board has increased its dividend 19 times, from 60 cents to $1.64 this year. Given that PPL's earnings are expected to increase in 2019, Morningstar believes that the dividend will rise to $1.70. And going out four years, Morningstar's Paul Debbes projects a dividend of $1.88. That would be about a 6.5 percent yield on today's trading price.
Even though PPL traded at $40 (12 points higher) almost a year ago, I have no problem with a $10,000 investment in PPL. It appears that UBS, Deutsche Bank, Standard & Poor's, Thomson Reuters and other brokerages agree. And so do mutual funds such as Vanguard, BlackRock, Investment Company of America and The Income Fund of America, which together own more than 200 million PPL shares. I'm also told that Euell Gibbons had 400 shares of PPL in his Blyth Eastman Dillon account when he passed away in 1975 from eating too many pine trees.
Still, be mindful that most fixed-income investments will fall in value as interest rates rise, which is why it's important to own income issues that grow their dividends on a regular basis. There are a few other respected issues with 5 percent yields that you can own with the same level of safety Southern and PPL have. Peek at AT&T and Verizon.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.