Xcel (XEL) is a Minnesota-based utility giant with a footprint that spans eight states across the Southwest and Upper Midwest, notes Robert Rapier, income expert and editor of Utility Forecaster.
The vast majority of earnings (~99%) are derived from regulated electric and gas utilities. Xcel is outperforming its peers in large part because investors like its move into renewable energy.
In 2018, industry magazine Utility Dive named Xcel the “Utility of the Year.” In choosing Xcel, they highlighted Xcel's plans to add 12 wind farms in seven states; its work in personalize energy management; and its plan to retire 50% of its coal-powered capacity from 2005 to 2026.
Xcel became the first major multi-state U.S. utility to announce plans to reduce its carbon emissions to zero. It seeks to reduce carbon emissions 80% by 2030 and 100% by 2050. Xcel is making the largest multi-state wind investment in the nation.
Those are appealing aspirations for many investors, but how does this translate to Xcel’s finances? Over the past five years, Xcel’s share price has grown at an average annual rate of 12.6%.
That outperformed the utility industry by 5.7% per year, and more than doubled the return of the S&P 500. Net income grew by 6.1% per year, and the annual dividend grew by 35%.
On the downside, Xcel’s renewable investments have driven up debt. Xcel’s net debt/EBITDA ratio has risen from 4.0 in 2013 to 5.1 in 2019. However, that isn’t much different than NextEra’s, which was 5.3 in 2019.
Looking ahead, Xcel is targeting earnings growth of 5%-7%, a dividend yield of around 2.7% at a payout ratio of 60%-70%, and an overall shareholder return of 8%-10% per year.
