ALLETE, Inc.’s (ALE) share price edged up 1.1% from the previous day’s price, closing at $49.98 per share on Jan 31, 2014. The marginal rise was primarily due to the market's positive response to the management’s decision to increase its quarterly dividend rate. It is evident from the last few years’ dividend payment history that ALLETE increases dividend rate once in a year. The market’s reaction was not that large as the increment in dividend was more or less in the expected lines.
The board of directors of ALLETE increased the quarterly dividend rate by 3.2% sequentially to 49 cents per share. The increased dividend will be paid on Mar 1, 2014 to stockholders of record as of Feb 14. On an annualized basis, ALLETE’s dividend rate will come to $1.96 per share. The annual dividend yield will be a healthy 3.9%, higher than the industry average of 2.3%.
ALLETE’s strategy of paying incremental dividends supports its commitment to improve long-term value for shareholders. The last dividend hike was in Jan 2013 when it was increased 3.3% sequentially to 47.5 cents from the earlier payout of 46 cents per share.
The company’s cash flow from operating activities was $188.9 million during the first nine months of 2013 and the cash balance was $164.5 million as of Sep 30, 2013. During the first nine months of 2013, the company paid $57.2 million as dividends. The strong cash flow generation will enable the company to arrange for the fund required for incremental dividend payment.
ALLETE is currently working to develop its infrastructure, better the quality of service and expand its customer base. In the first nine months of 2013, the company invested $186.4 million under its capital expenditure program and intends to spend $1,740 million through 2017.
ALLETE currently has a Zacks Rank #2 (Buy). Other players in the utility industry, which look equally good at current levels, include Exelon Corporation (EXC), Wisconsin Energy Corp. (WEC) and CMS Energy Corporation (CMS). Each stock carries the same Zacks Rank as ALLETE.
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