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1 Cheap Dividend King Working with Meta on AI Data Centers
Black Hills Corporation (BKH) has recently made headlines with a significant partnership that underscores its strategic growth and commitment to innovation in the utility sector. On July 11, Black Hills announced a collaboration with tech giant Meta Platforms (META) to power Meta's newest data center in Cheyenne, Wyoming. This collaboration is a significant step for Black Hills, especially considering the data center industry is projected to grow by 6.56% annually through 2028, reaching a market volume of $438.70 billion - with Meta standing out as one of the biggest spenders of the artificial intelligence (AI) boom.
Along with its newly established foothold in the AI data center industry, Black Hills' commitment to shareholder returns is evident in its impressive track record of dividend growth. The company recently announced its 54th consecutive annual dividend increase, solidifying its position as a Dividend King. With a current dividend yield of 4.39% and a historically cheap forward price-to-earnings ratio of just 15.09, BKH presents a compelling investment opportunity for income-seeking investors looking for a reliable and growing stream of dividends.
BKH Stock is a High-Yield Bargain
Valued at $4.08 billion by market cap, Black Hills Corporation (BKH) is an electric and natural gas (NGQ24) utility company based out of South Dakota. The company's business model revolves around providing its customers reliable and efficient energy services through a diverse portfolio of electric and gas utilities and non-regulated energy businesses.
BKH stock has been quiet over the past 52 weeks, with the shares down 2.1% in this time frame. More recently, a steady trend higher off the October lows has pushed the stock to a positive YTD return of 8%.
For investors looking to scoop up shares of the utility stock, it looks attractively priced right now. BKH is valued at a forward P/E of 15.09, and a forward price/sales ratio of 1.79. On this basis, BKH appears relatively cheap compared to both the broader utilities sector and its own 5-year average valuation multiples.
And on the dividend front, BKH continues to impress. They recently declared a quarterly dividend of $0.65 per share, which translates to an annual dividend yield of 4.39%. Even in the utilities sector, often favored for its dividend payments, that's a generous yield. Plus, BKH's status as a Dividend King, having increased its dividend consistently for over 50 consecutive years, speaks volumes about its financial stability and commitment to shareholders.
What's Driving Growth at Black Hills?
BKH's Q1 2024 earnings report revealed a strong performance, with net income available for common stock increasing to $127.9 million, up from $114.1 million in Q1 2023. Earnings per share rose 8% to $1.87. This growth was attributed to new rates and effective expense management, demonstrating the company's ability to navigate the complex utility landscape while capitalizing on emerging opportunities.
Moving forward, BKH reaffirmed its guidance for 2024, expecting earnings per share (EPS) to fall within the range of $3.80 to $4.00, assuming favorable regulations and no major unexpected shutdowns.
Beyond the new partnership with Meta, Black Hills is making more strategic moves to boost its growth. Earlier this year, they acquired a renewable natural gas (RNG) production facility in Dubuque, Iowa, expanding their green energy portfolio. This includes onsite infrastructure and long-term RNG production rights, positioning BKH to tap into the growing demand for sustainable energy.
In another big step, BKH's Colorado electric utility filed to update its rates, reflecting the rising costs of maintaining and upgrading its Southern Colorado electric system. The company plans to invest around $98 million in 2024 to enhance the resilience and reliability of its transmission and distribution network.
That said, BKH's venture into powering data centers for Meta isn't a one-time deal. The company is aggressively exploring options in this space, with plans to expand services to data center and blockchain customers.
What Do Analysts Expect for Baker Hills Stock?
Institutional investors hold a significant stake in BKH, with ownership levels around 86%. The top three shareholders are BlackRock (BLK), Vanguard Group, and State Street Global Advisors (STT), which collectively control a substantial portion of the company. This high level of institutional ownership adds some stability to the stock's prospects.
Elsewhere, sell-side analysts seem caught off-guard by the recent run higher in BKH stock, as the shares now trade at a premium to Wall Street's mean price target of $57.25.
All four analysts offering recommendations say the stock is a “hold,” and the Street-high target of $61 is only about 5% overhead.
The Verdict on BKH Stock
Black Hills Corporation (BKH) is a compelling pick for investors seeking a blend of stability, income, and exposure to the booming data center industry. With its strategic partnership with Meta, a rock-solid dividend track record, and attractive valuation metrics, BKH is well-positioned to power up portfolios in the years ahead.
While analysts remain cautious for now, the company's solid fundamentals and growth initiatives suggest that BKH's stock could be poised for an electrifying breakout.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
