Few power utilities can claim to have a dividend as safe as our latest Income Spotlight stock, explains Ari Charney, editor of Utility Forecaster.
After the latest upgrade to our Safety Rating System, fewer utilities achieved the highest score: a perfect 8. But Alliant Energy Corp. (LNT) did.
By any measure, Alliant showed itself as a formidable company. In an industry beset by declining electricity demand, Alliant managed to grow earnings per share by 8.1% annually over the past three years.
These results flowed through to the dividend, which has increased by 6.6% annually over that same period. And strong earnings coupled with a reasonable 58.6% payout ratio leave ample room for further dividend growth.
Any demanding investor will also want to know about the firm’s free cash flow, since that’s a much more accurate measure than earnings of how much cash a business has to service debt, pay dividends, invest in future growth, or buy back shares.
And on this front, Alliant did not disappoint. The firm has generated exceptionally strong free cash flows in five of the past six years. Further, Alliant aced our measures of solvency and it has minimal near-term debt obligations.
Alliant mainly operates two regulated utilities in the Midwest that include Interstate Power and Light Company (IPL) and Wisconsin Power and Light Company. These utilities boast solid service territory growth and constructive relationships with regulators.
Management has consistently reiterated its objective to achieve 5% to 7% annual earnings growth and a 60% to 70% common dividend payout target. Alliant is now a buy below $64.
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