The board of directors of the electric utility OGE Energy Corp. (OGE) has approved an increase in the annual dividend rate by 6.5 cents or 7.8%. The revised quarterly dividend will be paid on Jan 30, 2014, to the holders of record at the close of business on Jan 10, 2014.
The annualized dividend will come to 90 cents, with an annual dividend yield of 2.6%, which is higher than the industry average of 2.06%. The increase in the distributable income speaks of the company’s successfully executed investment growth strategy. The company aims to disburse up to 60% of its normalized earnings as dividends.
On May 16, 2013, the board of directors had approved of a two-for-one stock split, which came into effect on July 1, 2013. After adjusting for the stock split, the annual dividend of the company came to 83.5 cents. Earlier, OGE Energy had raised its annual dividend rate on Nov 28, 2012, by 6.4% to $1.67 per share.
True to the defensive nature of all utilities, OGE Energy has been paying dividends for the past 67 years. The company continues to generate strong cash flow. In the first nine months of 2013, cash flow was $351.2 million, with $119.2 million used for dividend payouts. We believe the consistent cash flow generation capability will enable the company to meet its increased dividend payment obligation.
The company registered a positive earnings surprise of 16.1% in the third quarter. The Street reacted positively to the earnings beat with the Zacks Consensus Estimate for 2013 increasing 4.5% in the last 30 days to $1.86 per share. This reflects projected year-over-year growth of 5.1%. Given the strong earnings performance, we expect OGE Energy to again revise its dividend rate upwards in 2014 to reach its 60% payout target.
Other players in the utility industry, which look attractive at current levels, include Alliant Energy Corp. (LNT), Brookfield Infrastructure Partners L.P. (BIP) and Black Hills Corp. (BKH). All these stocks carry the same Zacks Rank as OGE Energy Corp.