Strong dividend growth and ambitious plans in the energy sector
This U.S. energy sector company offers an attractive dividend yield of 4.2%, well above the industry average of 2.9%. It also boasts 54 years of uninterrupted dividend growth, making it one of the elite "dividend kings."
The firm serves more than 1.3 million customers across eight states, with areas of its footprint, such as South Dakota and Wyoming, experiencing population growth three times faster than the national average, providing a solid foundation for future growth.
Financial results for the second quarter of 2024 showed a slight decrease in net income to $22.8 million, down from $23.1 million in the prior year. However, the company still expects full-year earnings of between $3.80 and $4.00 per share, meaning that despite the slowdown, the outlook is maintained.
Company Performance
Black Hills Corporation $BKH+0.1% is a United States-based energy company that specializes in the generation and distribution of electricity and natural gas. It was founded in 1941 and has since grown into a major player in the energy sector. The company operates primarily in the US Midwest and West, including states such as South Dakota, Wyoming, Colorado, Montana, Kansas, Arkansas, Iowa and Nebraska. Its principal divisions include power generation, power distribution, natural gas distribution and natural gas production. This makes it both a producer and distributor of energy and allows it to control a significant portion of the value chain within the energy industry.
Black Hills Corp is focused on providing reliable and affordable energy to its customers. The company operates power plants that run on various types of fuels, including coal, natural gas, and renewable sources such as wind power. In addition to generating electricity, it also manages an extensive gas distribution infrastructure, providing supply to hundreds of thousands of homes and businesses.
The company's history dates back to its origins as a local power company focused on serving the Black Hills region of South Dakota, hence its name. Over time, the company has grown both geographically and by diversifying its products and services. During its expansion, it made a number of acquisitions that allowed it to increase its market share. For example, a significant acquisition was the purchase of Aquila, Inc. in 2008, which strengthened its position in the electricity and gas distribution business. These strategic acquisitions have helped it not only to expand its footprint but also to consolidate its position among the regional energy giants.
In addition to power generation and distribution, Black Hills Corp is also involved in community projects and volunteer activities to contribute to the development of the regions where it operates. The company supports various educational and charitable projects and works with local governments to improve the quality of life for its customers.
Dividend policy
Dates to 2022 ☝
Black Hills Corporation is a small but strong player in the energy sector, especially when it comes to dividend payments. Although it has a market capitalization of around $4.2 billion, which puts it among the smaller companies in the industry, its dividend yield is 4.2%. This is well above the utilities sector average of about 2.9% (as measured by the Utilities Select Sector SPDR ETF). From this perspective, Black Hills appears to be a fairly attractive option for investors seeking higher yields.
Another important consideration regarding dividends is the fact that Black Hills has increased its dividend for an incredible 54 years in a row. This figure puts it among the elite of the so-called "Dividend Kings" - companies that have maintained continuous dividend growth for more than 50 years. Very few utilities can boast a similar record. This long-term stability and commitment to shareholders makes Black Hills not only an attractive investment opportunity in terms of yield, but also a credible choice for investors seeking safe dividend growth.
At the same time, the company itself is on solid footing. Black Hills serves 1.3 million customers in various parts of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. Interestingly, population growth in these regions is nearly three times faster than population growth in the United States as a whole. These demographic trends provide the company with a stable foundation for future growth, which contributes to its strong financial health and ability to continue to grow its dividend.
While Black Hills may not be an exciting dividend play at first glance, its stability and predictability can be very valuable, especially during turbulent periods in the markets.
What's in store for the company?
1. First and foremost, it will be population growth in the South Dakota area, specifically Rapid City. The next five to ten years are expected to be critical for Black Hills. With population growth almost certain, Rapid City and surrounding cities must prepare for the future. Long-term city planners are already working to update Rapid City's Comprehensive Plan, which focuses on development through 2035. City Planner Sarah Hanzel emphasized that an important part of the process is engaging the public to voice their needs and opinions about the changes they want to see.
The city hosted events where participants shared their ideas in exchange for root beer floats. Topics discussed included population growth, housing needs, transportation, and an overall vision for the future of the city. Kelly Brennan, another urban planner, highlighted issues with the bus system, including outdated infrastructure and lack of funding to renew the fleet.
Rapid City faces challenges that link transportation, housing, and economic development, including aging infrastructure and limited development opportunities in the Black Hills area.
The 2nd California Independent System Operator (ISO), which manages the flow of electricity over 26,000 miles of high-voltage power lines to utilities in California and a small portion of Nevada, recently added the business units of Black Hills Corp. based in Rapid City, South Dakota, Wyoming, to its system.
The ISO reaches more than 30 million consumers, about 50 times more than in all of Wyoming.
Units of Black Hills Power Inc. and Cheyenne Light, Fuel and Power Co. both doing business as Black Hills Energy in Wyoming will become members of the California ISO in the future as part of a real-time electricity trading market designed to benefit ratepayers in 12 states.
How was the last quarter?
Black Hills Corp. reported its financial results for the second quarter of 2024, which produced a slight decline in earnings compared to the same period last year. Net income available for common stock for the three months ended June 30, 2024 was $22.8 million, down slightly from $23.1 million in 2023. Earnings per share were $0.33, down slightly from $0.35 in the second quarter of the prior year. Although results were impacted by adverse weather and last year's tax benefit, new rates and lower operating expenses helped partially offset these impacts.
Chairman and CEO Linn Evans highlighted that year-over-year earnings were up 6% and the company reaffirmed its expectation for full-year earnings of between $3.80 and $4.00 per share. Evans also highlighted strategic progress in customer access, particularly in relation to the energy supply plan for Meta's new AI data center in Cheyenne, which will be operational in 2026. Black Hills is attracting new data centers due to its high reliability and innovative energy solutions such as unique tariffs and low-energy purchasing models.
Other major projects include the ongoing construction of the 260-mile Ready Wyoming electric transmission linewhich will enhance reliability and access to energy markets. Black Hills also continues to develop a plan to reduce emissions in Colorado by 80% by 2030 and plans to add 100 megawatts of new capacity in South Dakota by 2026.
In addition, the company reaffirmed its quarterly dividend of $0.65 per share, representing 54 years of uninterrupted dividend growth, the second-longest record in the industry. Black Hills also strengthened its financial position with a successful $450 million bond issuance and released an updated sustainability report that includes a 27% reduction in greenhouse gas emissions from its gas infrastructure starting in 2022.
Recent results
Revenue and gross profit
The company's total revenue in the most recent reporting period (TTM) was $2.13 billion, a slight decrease from prior years. In 2023, revenues were $2.33 billion, also a decrease from the peak year of 2022 when revenues were $2.55 billion. This decline may be partly attributable to lower demand or changes in cost structure, but it is worth noting that revenues increased significantly between 2021 (USD 1.95 billion) and 2022.
In terms of gross profit, it increased slightly to USD 828.3 million for TTM despite the decline in sales, compared to USD 796.4 million in 2023 and USD 772.8 million in 2022. This growth shows that the company is effectively controlling its production costs while managing to maintain profitability.
Operating profit and total expenses
Black Hills Corp's operating profit has increased from US$409.4 million in 2021 to US$498.3 million in the last 12 months, demonstrating effective management of operating expenses and the ability to generate a stable profit from its core business. Total expenses, on the other hand, increased from US$1.54 billion in 2021 to US$1.86 billion in 2023, but then declined again to US$1.63 billion in TTM, which may be due to cost saving measures and cost optimization.
Net income and earnings per share (EPS)
Net profit for shareholders for the latest reporting period (TTM) was $275.7 million, up from $262.2 million in 2023 and $258.4 million in 2022. This growth confirms the long-term stability of the company as well as its ability to generate increasing shareholder value. Earnings per share (EPS) has shown a similar growth trend, increasing to $4.04 over the past 12 months compared to $3.91 in 2023 and $3.97 in 2022.
EBIT and EBITDA
Operating EBIT and EBITDA are also showing sequential growth. TTM's EBIT (operating earnings before interest, taxes and depreciation) reached US$512.8 million, up from US$481.6 million in 2023, and EBITDA (operating earnings before interest, taxes, depreciation and amortization) reached US$775.7 million, up from US$738.4 million in 2023. This indicates that the Company is effectively improving its operating performance and ability to generate cash flow.
Key indicators x Sector average
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