Why ES Is Trading below Its Historical Forward Dividend Yield

Will Eversource Energy Continue to Delight Investors in 2016?

(Continued from Prior Part)

Forward dividend yield

Now, let’s discuss Eversource Energy’s (ES) forward dividend yield. As of April 13, 2016, Eversource is trading at a forward dividend yield of 3.3%.

A company’s forward dividend yield is calculated by dividing its estimated one-year future dividend per share by its market price per share.

ES trades below its historical forward dividend yield

The chart above shows Eversource Energy’s forward dividend yield compared to its three-year historical average forward yield. It’s trading at a lower forward dividend yield to its historical average, which stands at 3.8%.

The surge in the stock’s price in the last six months could be one of the reasons it’s trading at a yield below its historical average. Peers DTE Energy (DTE) and Consolidated Edison (ED) are each trading at a forward yield of ~3.4%.

Regulated utilities tend to have lower yields compared to unregulated ones, since regulated utilities (RYU) generally have relatively stable earnings. On the other hand, Entergy (ETR) and FirstEnergy (FE) each have a forward yield of near 4.5%. Eversource Energy’s growing dependence on operations other than regulated ones may trigger volatility in its earnings. This could ultimately increase Eversource’s yields.

ETF exposure

The Vanguard US Utilities ETF (VPU) is an electric utility–focused fund that invests nearly 2.4% of its total holdings in Eversource Energy. VPU has a concentration in regulated utilities, and its top ten holdings account for nearly 50% of its total weight.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Unusual Rally: Utilities, Eversource Outperform Broader Equities

• Part 2 - Which of Its Businesses Does Eversource Expect Will Drive Growth?

• Part 3 - Eversource’s Rate Base Will Mostly Consist of Transmission Assets