WEC Energy Group (WEC) Dividend Stock Analysis

WEC Energy Group, Inc. (WEC) provides regulated natural gas and electricity, and renewable and nonregulated renewable energy services in the United States. The company operates through six segments: Wisconsin, Illinois, Other States, Electric Transmission, Non-Utility Energy Infrastructure, and Corporate and Other.

The company is a dividend achiever with a 20 year track record of annual dividend increases. The last dividend increase occurred last week, when the Board of Directors authorized a 7% increase in the quarterly dividend to $0.835/share. 

"The board's review today is consistent with our ongoing plan targeting a dividend payout ratio of 65 to 70 percent of earnings," said Gale Klappa, executive chairman. (Source)

The company has managed to grow dividends at an annualized rate of 9.30% over the past decade. Over the past five years however, the annualized rate of dividend growth has been 6.90%. The latest dividend increase is in that range as well.

The company has managed to grow earnings from $2.35/share in 2012 to $4.46/share in 2022. 

The company is expected to earn $4.62/share in 2023 and $4.91/share in 2024.

WEC Group expects compound annual EPS growth of 6.5% to 7.0% between 2023 and 2028. (Source) (source)

This will be a direct result of increases in the capital base and capital spending.

This is a breakdown of the five-year capital investment plan between 2024 and 2028, which would drive growth in the asset base that would drive earnings per share growth.

The company plans to finance most of the capital spending with cash from operations - $16.50 - $17.50 billion through 2028. It does plan to take on $7 - $8 billion in incremental debt and sell $1.8 - $2.2 billion in equity to finance any shortfalls.

I find it helpful to see the commitment to growing the business, and also allocating cash to shareholders for dividends.

WEC Energy is working on exiting coal, and investing in natural gas and renewables.

The dividend payout ratio has largely remained between 65% and 70% in the last five - six years or so. It has increased slightly from 57% in 2012 to 65% today. Any future dividend increases would likely be a direct result of growth in earnings per share, rather than expansion in the payout ratio.

 

The company grows by acquiring new assets, but pays for them by issuing debt and equity. As a result, the number of shares outstanding for utilities companies tends to increase over time. The big jump in shares outstanding in 2015 was as a result of the Integrys acquisition.

Currently, the stock is selling at 18 times forward earnings. It offers a dividend yield of 4.06%. 

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As part of my review process, I evaluate dividend increases every week. This process helps me to see how my portfolio holdings are doing. It also helps me to uncover and review new candidates for my portfolio.

I look for dependable dividends from companies with a minimum ten-year streak of annual dividend increases, fueled by earnings growth. I look for dependable dividends from companies with dependable earnings, and solid competitive advantages, which I can acquire at attractive valuations.

During the past week, the following companies increased dividends to shareholders. Each company has a ten year streak of annual dividend increases. I review the latest dividend increase relative to the ten year average, and the growth in earnings per share over the past decade. Last but not least, I discuss current valuation. The companies include:

Name	Symbol	New Dividend	Previous Dividend	Increase %	Dividend Streak in Years	5 year Dividend Growth Rate	Dividend Yield	Forward P/E
Abbott	ABT	$    0.55	$    0.51	7.84%	52	12.14%	2.05%	24.24
Amgen	AMGN	$    2.25	$    2.13	5.63%	12	11.02%	3.27%	14.84
American Tower	AMT	$    1.70	$    1.62	4.94%	12	16.60%	3.21%	10.38
Franklin Resources	BEN	$    0.31	$    0.30	3.33%	43	7.71%	4.22%	12.59
Edison	EIX	$    0.78	$    0.74	5.41%	19	5.23%	4.45%	14.91
Ensign	ENSG	$    0.06	$ 0.0575	4.35%	15	5.29%	0.22%	23.42
Mid-America Apartment	MAA	$    1.47	$    1.40	5.00%	13	6.08%	4.37%	14.66
Nucor	NUE	$    0.54	$    0.51	5.88%	51	5.78%	1.25%	9.64
Norwood Financial	NWFL	$    0.30	$    0.29	3.45%	25	5.26%	3.53%	10.86
Realty Income	O	$ 0.2565	$ 0.2560	0.20%	30	3.20%	5.37%	13.89
Pfizer	PFE	$    0.42	$    0.41	2.44%	13	4.56%	6.31%	17.17
Pentair	PNR	$    0.23	$    0.22	4.55%	48	6.41%	1.30%	19.01
SEI Investments	SEIC	$    0.46	$    0.43	6.98%	32	6.64%	1.48%	17.84
Toro	TTC	$    0.36	$    0.34	5.88%	14	11.38%	1.65%	21.45
US Bancorp	USB	$    0.49	$    0.48	2.08%	13	10.29%	4.35%	11.12
WD-40	WDFC	$    0.88	$    0.83	6.02%	14	9.74%	1.50%	46.17
Waste Management	WM	$    0.75	$    0.70	7.14%	20	8.87%	1.72%	29.17

This is a list of companies for further review. Most seem attractive as businesses, but that doesn’t mean that they should be invested in at any price, regardless of valuation.

The next step is to check each business, in order to determine if it is worth further review. I would look at ten year trends in earnings per share, dividends per share, payout ratios, shares outstanding. I would try to understand what the business does, and make an assessment if the good times would continue, so that I can expect higher earnings, dividends and intrinsic values over time. I would look at the valuation relative to earnings and dividend growth, in order to determine if the business is fairly valued, if it looks promising too. 

For a sample review of American Tower (AMT), check here.

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