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Morningstar | Strong Growth at Entergy's Utilities Should Drive Accelerating Dividend Increases

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, but Entergy plans to retire the plant when the contract ends.We have a high level of confidence that Entergy can exit its merchant nuclear business without material negative cash flow. The three reactors at Indian Point are the remaining units without sale agreements with a decommissioning specialist. However, the three nuclear decommissioning trusts for Indian Point remain comfortably above the estimated retirement obligations.Once Palisades is shut down, Entergy will have completely exited the merchant nuclear business and have minimal exposure to commodity energy markets. We estimate that Entergy's remaining nonregulated investments will represent less than 1% of net income.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 6% annual adjusted operating earnings per share growth for the utility, parent, and other segment between 2019 and 2023.Entergy raised its dividend 2.4%, or $0.08 per share annualized, in December 2015, the first raise since 2010. The board has continued raising the dividend by a similar amount each year. Given the solid growth of Entergy's utilities, we believe the dividend is secure and can grow roughly 3% annually during the next five years.