NU Nu Holdings Ltd

Northeast Utilities (NU) has announced that it will pay an incremental dividend in the first quarter of 2014. The board of trustees has increased the quarterly dividend rate by 6.8% year over year to 39.25 cents per share. The increased dividend will be paid on Mar 31, 2014 to stockholders of record as of Mar 3.

On an annualized basis, Northeast Utilities’ dividend rate will come to $1.57 per share. The annual dividend yield will be a healthy 3.4%, higher than the industry average of 2.4%.

Northeast Utilities’ strategy of paying incremental dividends supports its commitment to maximize shareholder wealth. The last dividend hike was in Feb 2013 when it increased 7.1% sequentially to 36.75 cents per share from the earlier payout of 34.3 cents per share.

During the first nine months of 2013, the company’s net cash flows provided by operating activities were $1.2 billion, significantly higher than $0.8 billion in the year-ago comparable period. The strong cash flow generation capacity enables the company to pay incremental dividends.

Apart from paying regular dividends, the financial cushion supports Northeast Utilities to expand its existing operations. The company is currently in the middle of several projects, including the Interstate Reliability Project, the Mid-Cape Project and the Northern Pass Project. The company’s strong infrastructure expansion program is expected to allow it to increase transmission capacity, thereby meeting increased customer demand.

We note that several utility providers recently increased their dividend rates. ALLETE, Inc. (ALE) and CMS Energy Corp. (CMS) increased their dividends by 3.2% and 5.9% sequentially, respectively.

However, we are concerned about stringent regulations and an over-reliance on transmission and distribution businesses, which can challenge Northeast Utilities’ future performance.

Northeast Utilities currently has a Zacks Rank #4 (Sell). However, a better-ranked stock in the same sector is Wisconsin Energy Corp. (WEC) with a Zacks Rank #2 (Buy).

 
ALLETE INC (ALE): Free Stock Analysis Report
 
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NORTHEAST UTIL (NU): Free Stock Analysis Report
 
WISC ENERGY CP (WEC): Free Stock Analysis Report
 
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