1 High-Yield Dividend Stock You’ve Probably Completely Overlooked

PPL Corporation (NYSE: PPL) tends to fly under the radar of most investors. That could be because the utility operates in seemingly slower-growth areas such as eastern Pennsylvania, central Kentucky, and the U.K. That lack of enthusiasm toward the company is causing investors to miss out on a solid utility that pays an attractive 5.3%-yielding dividend, which is well above the 3.8% average of its peers. Further, PPL offers a lot more growth than investors would expect, powered by the $15 billion it plans on investing across its three businesses over the next five years.

PPL 101

PPL operates seven regulated electric and gas utilities in Pennsylvania, Kentucky, and the U.K. These businesses generate very predictable cash flow, which gives the company the money to pay its dividend as well as invest in expansion projects. This dual focus on growth and income has enabled PPL to increase its shareholder payout 17 times in the last 18 years.

That dividend is on solid ground. For starters, PPL only expects to pay out about 69% of its earnings in 2019, which is right in line with the average payout ratio of its peers. PPL also boasts a solid investment-grade balance sheet, which gives it the financial flexibility to invest in expansion projects. The company's combination of stable cash flow, conservative payout ratio, and healthy balance sheet enhances the long-term sustainability of the dividend.

Meaningful growth on the horizon

While the main draw of PPL is its sizable dividend, the company adds to that attraction by also offering solid growth prospects. As mentioned, the utility expects to invest roughly $15 billion over the next five years across all three of its operating regions to grow earnings. Projects include making its electricity transmission grid smarter and more resilient, connecting it to more renewables, and expanding its solar power-generating capacity. These investments should support a 5% to 7% compound annual growth rate (CAGR) in earnings per share from 2018 through 2020 while putting it on track to expand profits at a 4.7% CAGR through 2023.

That's a healthy growth rate for a utility. For comparison's sake, the 10 largest power companies have delivered a 3% CAGR in earnings per share since 2005. Meanwhile, PPL's growth forecast lines up well with what rivals see ahead. Leading utility NextEra Energy (NYSE: NEE), for example, expects to grow earnings at a 6% to 8% CAGR through 2021, while Dominion Energy (NYSE: D) is on track to generate a 5%+ CAGR through 2023. It's worth pointing out that one reason these rivals are on pace to grow at a faster rate is that they recently made needle-moving acquisitions: NextEra bought Gulf Power and some other assets from Southern Company, while Dominion acquired SCANA, which should give both an extra boost.

PPL's anticipated earnings growth should enable the company to continue increasing its dividend each year. With its yield well above the peer-group average and a higher investment spending level expected over the next couple of years, PPL likely won't grow its dividend at the same pace as earnings in the near term. However, on the plus side, that will reduce its payout percentage, which will make the dividend even more sustainable over the longer term.

A solid income stock to consider

PPL Corporation isn't on the radar of most investors because it operates sleepy utilities in the U.S. and U.K. As a result, they're missing out on a company that generates stable cash flow, which it uses to support a well-above-average dividend. That payout appears poised to continue growing over the next several years, since the company has a large backlog of expansion projects lined up that should power healthy earnings growth. That combination of yield and growth makes PPL a stock that income seekers won't want to overlook.

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Matthew DiLallo owns shares of NextEra Energy. The Motley Fool recommends Dominion Energy, Inc. and NextEra Energy. The Motley Fool has a disclosure policy.