Black Hills Corporation (BKH) is a utility holding company that operates regulated electric and natural gas utilities, notes Hilary Kramer, growth and income expert and editor of Value Authority.

The company's electric utilities segment generates, transmits and distributes electricity to approximately 214,000 electric utility customers in Colorado, Montana, South Dakota and Wyoming. This unit owns 939 megawatts (MW) of power generation and 8,892 miles of electric transmission and distribution lines.

The gas utilities segment serves approximately 1,066,000 natural gas utility customers in Arkansas, Colorado, Iowa, Kansas, Nebraska and Wyoming.

This unit owns and operates approximately 4,775 miles of intrastate gas transmission pipelines, 41,210 miles of gas distribution mains and service lines and seven natural gas storage sites. This unit nearly doubled in size following the 2015 acquisition of SourceGas Holdings LLC for $1.89 billion.

The power generation segment produces electric power from its wind, natural gas and coal-fired generating plants and sells the electric capacity and energy primarily to the company’s regulated utilities under long-term contracts.

The mining segment produces coal at the company’s mine near Gillette, Wyoming, and sells and delivers it primarily under long-term contracts to adjacent electric generation facilities owned by BKH.

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As a regulated operation, the company has achieved steady growth by putting new assets online and are granted a return on these assets by state regulatory commissions. Earnings per share have grown from $2.98 in 2015 to $3.53 in 2019, aided by the acquisition.

Fourth-quarter 2020 results are expected to show full-year earnings of $3.60 to $3.75 a share, despite a $0.05 to $0.10 a share drag from COVID-19. Favorable weather and good execution in natural gas operations all compensated for the COVID-19-related weakness.

BKH has given preliminary guidance for 2021 for EPS of $3.75 to $3.95 a share. The drag from COVID-19 will reverse, and the company is expected to benefit from favorable rate rulings and new capital projects.

While the market seems to be shying away from utilities due to interest rate concerns, there is good value in the stock at roughly 16X this year’s EPS estimates, with estimates not impacted by any change in the corporate tax rate, as the company is given a fixed after-tax return by regulators on 92% of its assets.

BKH offers a dividend yield of 3.8%, with the dividend likely to increase by 4% to 5% per year. By comparison, the company recently sold 10-year bonds yielding only 2.5%, making the stock attractive by comparison. Buy under $62. My target is $67.

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