SJW- A Utility that Provides an Attractive Mix of Dividend Yield and Growth
Returns from dividend stocks can be thought of on a spectrum. On one end of the spectrum is high growth. On the other end is high yield. In very rare cases, a stock can offer both, but that usually involves a high level of risk. One name I like here is SJW Group (SJW), explains Ben Reynolds, editor of Sure Dividend.
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Typically, dividend stocks either have low yields and higher dividend growth rates, or high yields and lower dividend growth rates, or they meet somewhere in the middle (medium yield, medium growth). The image below shows the growth rates and dividend yields of this month’s Top 10 stocks, along with a trendline.
As the chart above shows, there’s a clear negative relationship between growth rate and dividend yield. On average, the higher the yield, the lower the growth rate.
As for SJW, it is a US water utility services provider. It operates in two segments: Water Utility Services and Real Estate Services. The company engages in production, purchase, storage, purification, distribution, and selling of water and wastewater services. The company has about 403,000 connections serving about 1.5 million people in California, Connecticut, Maine, and Texas.
SJW is the product of a slew of mergers over the decades, and the dividend increase streak stands at 56 years, making it a Dividend King. Total annual revenue is about $670 million, and the stock’s market cap is $1.8 billion.
On Jan. 25, SJW announced a 5.3% dividend increase, boosting its annualized dividend per share from $1.53 to $1.60. On Feb. 22, SJW Group announced fourth-quarter and full-year results for the period ending Dec. 31, 2023. For the quarter, earnings per share of $0.59 compared unfavorably to earnings per share of $1.09 in the prior year, but this was in-line with expectations. For the year, earnings per share of $2.68 compared favorably to $2.43 in 2022.
The decline in earnings per share in the most recent quarter was primarily related to a delayed decision in the company’s general rate case in California that caused SJW Group to recognize a full year of revenue in the fourth quarter of 2022.
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SJW Group provided an outlook for 2024 as well, with the company expecting earnings per share in a range of $2.68 to $2.78. At the midpoint, this would be a 1.9% increase from the prior year.
Recommended Action: Buy SJW.
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