Black Hills: This 3.4%-Yielding Stock Is Undervalued

Seeking AlphaDividend Ideas | Utilities Black Hills: This 3.4%-Yielding Stock Is UndervaluedJul. 17, 2020 7:21 AM ET|| About: Black Hills Corporation (BKH), Includes: AEP, AVAby: Ploutos InvestingPloutos Investing Dividend growth investing, growth at reasonable price, value, long-term horizonSummaryBlack Hills saw its Q1 2020 earnings decline due to unfavorable weather conditions in its services territories.
The company plans to invest a total of $2.7 billion in five years to grow its rate base and EPS through 2024.
Black Hills pays a growing 3.4%-yielding dividend and has a sustainable payout ratio.
Investment Thesis
Black Hills (NYSE: BKH) saw its EPS decline in Q1 2020 primarily due to unfavorable weather conditions. The company has $2.7 billion of capital projects to help grow its EPS in the next five years. It has recently lowered its 2020 guidance slightly due to the negative impact of COVID-19, but believes that the impact will gradually recede in the second half of 2020. Black Hills currently pays a 3.4%-yielding dividend and is trading at a discount to its peers. Therefore, this is a stock worth considering for investors seeking both dividend growth and some capital appreciation.
Data by YCharts
Recent Developments: Q1 2020 Highlights
Black Hills had a challenging Q1 2020 as the company saw its earnings per share decline to $1.51 per share from $1.73 per share in Q1 2019. The impact was primarily due to adverse weather conditions in its service territories. Management estimated that the impact was about $0.19 per share.

Source: Q1 2020 Investor Presentation
Earnings and Growth Analysis
$2.7 billion of capital investments between 2020 and 2024
Black Hills plans to spend about $2.7 billion in capital expenditures between 2020 and 2024. As can be seen from the table below, the company expects to invest about $669 million and $555 million in 2020 and 2021 respectively, and about $4.7-$4.8 million annually between 2022 and... Read more