Dividend Growth Stock Overview: Black Hills Corporation

Black Hills Corporation provides electric and natural gas service to customers in
- appropriately enough - the Black Hills region of the United States.
Photo courtesy clkohan/flickr.com.

About Black Hills Corporation

Black Hills Corporation, through a variety of subsidiaries, provides electric and natural gas services to customers in South Dakota, Wyoming, Montana, and Colorado, and conducts energy exploration and development in the Rocky Mountain region. The company is headquartered in Rapid City, SD and has over 2000 employees. Black Hills Corporation and its predecessor company, Black Hills Power and Light Company have provided electric utility service in the Black Hills region since 1941.

Black Hills Corporation has two primary business groups: Regulated Utilities and Non-Regulated Energy. (The company also has two other small groups: Service Guard and Tech Services, but these do not provide large contributions to the bottom line.) The Regulated Utilities business group, through two subsegments – Electric Utilities and Gas Utilities – provides electric and natural gas service to nearly 800,000 customers in South Dakota, Wyoming, Montana, Colorado, Iowa, Nebraska and Kansas through subsidiaries. This group has total assets of $3.7 billion, which includes 841 MW of electricity generation capacity, 8,660 miles of electric transmission and distribution lines, and over 19,000 miles of gas distribution lines. Revenue for the Regulated Utilities group in 2014 was $1.28 billion, which was up 9.2% from 2013. 2014 net income was $101 million, an increase of 19.5% year-over-year. The revenues were nearly evenly split between Electric Utilities and Gas Utilities in 2014.

The Non-Regulated Energy business group engages in exploration, production and development of coal, oil and gas, and power generation for resale to generating plants, including Black Hills’ subsidiaries. (“Non-Regulated” is a misnomer. While this business group is not generally subject to the regulations applied to local utilities, it is required to comply with all state and federal regulations.) Coal mining is done in Black Hills’ mine near Gillette, WY, while the oil & gas production takes place primarily in the Rocky Mountain region of the country. The products are provided mainly to the power generation elements of the business group, which generated energy that is sold mainly to Black Hills’ Regulated Utilities business group. The Non-Regulated Energy business group earned $28 million in income in 2014 and had total assets of $500 million.

The company, like all utilities, is required to comply with state and federal environmental regulations. Black Hills Corporation is estimating the cost of complying with the federal regulations to be $2.9 million in 2015, $3.5 million in 2016 and $1.9 million in 2017. These figures exclude the cost of plant closures and the cost of building replacement-generating facilities. In addition, the company’s various subsidiaries are in compliance with all state environmental requirements for renewable power generation.

Revenue for the entire Black Hills Corporation was up 9.2% in 2014 to $1.39 billion, and net income was up 12.0% to $128.8 million. Earnings per share were $2.89 in 2014, up 11.6% from 2013. The increase in earnings per share over the last several years has allowed the dividend payout ratio to fall from 80% in 2012 to a more reasonable 54% in 2014.

The company is a member of the S&P Mid Cap 400 index and S&P’s High Yield Dividend Aristocrats index, and trades under the ticker symbol BKH.

Black Hills Corporation’s Dividend and Stock Split History

Black Hills Dividend Growth

Black Hills has grown its dividend in the low single digit percentages since 2000.

Black Hills Corporation and its predecessor company has paid quarterly dividends since 1941; dividends have increased annually since 1972. The company usually announces its annual dividend increase at the end of January, with the stock going ex-dividend in the middle of February. Dividend payments are made on or about the first of March, June, September and December. In January 2015, Black Hills Corporation announced a 1.5-cent – or 3.85% – increase to the quarterly dividend, giving the company an annual payout of $1.62. I expect Black Hills to announce its 45th annual dividend increase in January of 2016.

Black Hills has established a record of very small dividend increases. Since 1992, the year-over-year increase has not exceeded 6% and, in many cases, has been much smaller. This is reflected in the company’s low compounded annual dividend growth rate (CADGR): Black Hills has a 5-year and 10-year CADGR of 2.38% and a 25-year CADGR of 3.25%.

Black Hills has split its stock twice over the last 25 years – in March 1992 and March 1998. Both splits were 3-for-2.

Over the 5 years ending on December 31, 2014, Black Hills stock appreciated at an annualized rate of 19.47%, from a split-adjusted $21.62 to $52.62. This significantly outperformed the 13.0% annualized return of the S&P 500 and the 14.9% annualized return of the S&P Mid Cap 400 index during this time.

Black Hills Corporation’s Direct Purchase and Dividend Reinvestment Plans

Black Hills Corporation has both direct purchase and dividend reinvestment plans, and the dividend reinvestment plan does allow for partial reinvestment of dividends. All direct purchases must be drawn from either a United States or Canadian financial institution. The fees structure for both plans are somewhat favorable for investors, although not the lowest among dividend growth companies, in that you pay a per share commission on all purchases. New investors – who are required to invest at least $250 in either a single purchase or 10 monthly purchases of $25 each – do not pay an enrollment fee, but they will pay a 6-cent per share commission. You’ll pay this same commission when you reinvest your dividends.

The minimum amount for additional cash purchases is $25.

When you sell your shares in the plan, you will pay a fee of between $15 and $30 depending on the type of sell order you request, plus a 15-cent per share commission. There’s also a $5 fee to have the proceeds from the sale directly deposited into your bank account.

Helpful Links

Black Hills Corporation’s Investor Relations Website

Current quote and financial summary for Black Hills Corporation (finviz.com)

Information on the direct purchase and dividend reinvestment plans for Black Hills Corporation

 

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