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Morningstar | Entergy's Dividend Is Secure as Company Exits Merchant Nuclear Business

Entergy is progressing on an orderly wind-down of its once-thriving merchant nuclear business. The 2 gigawatt Indian Point nuclear plant north of New York City has a plan to shut down one unit in 2020 and the other one in 2021. The power purchase agreement for Palisades in Michigan was extended to 2022, and we expect the nuclear plant will be shut down at that time. Once Palisades is shut down, Entergy will have completely exited the merchant nuclear business and significantly reduced its exposure to commodity energy markets.By early next decade, Entergy will be almost entirely a regulated utility. Entergy will continue to have joint venture investments in some merchant plants and wind farms, but we estimate these will contribute less than 1% of earnings.Although the merchant generation business has not done well, Entergy's regulated utilities are experiencing strong industrial sales growth driven by an industrial boom in the Mississippi Delta region. We forecast 7% annual utility, parent and other segment, or UP&O, operating earnings per share growth from 2018 to 2022.However, the strong performance of UP&O will not be enough to overcome the earnings loss from the merchant segment as operations at Entergy's merchant nuclear plants are wound down. We estimate Entergy's consolidated operational earnings per share in 2022 will be roughly 7% lower than our 2018 estimate. We believe the decline masks the true earnings power of this regulated utility in the next decade.Entergy raised its dividend 2.4% in December 2015, the first increase since 2010. The dividend was increased by similar amounts in 2016 and in 2017. Due to the solid growth of Entergy's utilities, we believe the dividend is secure and can grow almost 3% annually during the next five years even with the decline in consolidated EPS.