Dividend Kings Overview and Valuation Series – Black Hills Corporation (BKH)

Welcome to this series where I will be reviewing all the Dividend Kings and providing an overview and valuation calculation on the companies. Dividend Kings are a rare breed of Dividend Growth Companies. These companies have managed to raise their dividend for 50 or more years consecutively. Through all types of market swings, economic trouble, wars, recessions, these companies have seen it all and continue to reward shareholders with rising dividend income.

This week’s entry will focus on:

BKH – Black Hills Corporation

Overview

Black Hills Corporation (BKH), through its subsidiaries, operates as an electric and natural gas utility company in the United States, with electric utility customers in Colorado, Montana, South Dakota, and Wyoming and gas utilities in Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming. 

The company produces electric power through wind, natural gas, and coal-fired generating plants and was incorporated in 1941 and is headquartered in Rapid City, South Dakota.

(Source: Company Website)

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Metrics:

Dividend Amount: $2.38

Dividend Yield: 3.03%

5 Year Dividend CAGR: 6.35%

Dividend Payout Ratio: 63.64%

Years of Dividend Increases: 52 Years

EPS: $3.74

P/E: 18.35

Analyst 5 Year Earnings Growth Estimate: 4.67%

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Valuation:

Current Price: $78.65 (4/15/22)

DCF (10% RRR): $51.65

P/E Mean Reversion:$66.20

Dividend Yield Theory: $76.77

Average of the three: $64.87

Analyst 1 year Price Target: $77.86

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Commentary:

BKH provides necessary services to the company’s target markets in the upper Midwest and West states.  Some of their markets are growing the population as people look to move from more expensive states like California. This company has a long history of paying and growing the dividend through slow and steady growth and conservative payout ratios.  The stock is very stable compared to the overall market, with a Beta of 0.47, which is typical for a utility.

The stock has provided solid long term returns but has periods of cyclicality. The total return since 1984 is over 4,000% but the past 5 year price appreciation has only been 16.95%. The combined dividend yield plus dividend growth is lower than I would like but the company is very stable and the dividend growth rate is in line with the earnings growth rate and they have room to continue to raise the dividend with the payout ratio only at 63.64%, which is on the lower end for an utility. The dividend history of 52 years of consecutive growth shows the stability of utilities and the legal monopoly positions that utility companies have. 

The stock appears fully valued to overvalued at this time and with limited growth ahead, waiting for a pullback may be needed before purchase.

Disclosure:  I do not own shares of BKH.