Updated 3/5/25
ALLETE, Inc. (NYSE: ALE) may not be a household name, but for income-focused investors, it’s a stock worth knowing. The company provides electricity to customers in Minnesota, Wisconsin, and North Dakota, operating as a regulated utility with a stable revenue base.
For dividend investors, utilities are a natural fit. They tend to be reliable, steady, and capable of generating predictable cash flows. ALLETE, with its long history of dividend payments, fits that mold. But with a high payout ratio and recent revenue declines, does it still deserve a spot in a dividend portfolio? Let’s take a closer look.
🔑 Key Dividend Metrics
📌 Dividend Yield: 4.46%
📌 Annual Dividend: $2.92 per share
📌 Payout Ratio: 90.97% (high, which could impact future increases)
📌 5-Year Average Yield: 4.28%
📌 Dividend Growth: Over 20 years of increases
📌 Ex-Dividend Date: February 14, 2025
📌 Most Recent Dividend Increase: Small but steady
Dividend Overview
ALLETE’s dividend yield of 4.46% is attractive, especially in today’s uncertain market. Compared to the broader S&P 500, which typically yields around 1.5% to 2%, ALLETE provides a strong income stream for investors looking for cash flow.
One concern, though, is the high payout ratio. At nearly 91%, ALLETE is paying out most of its earnings in dividends. That’s not necessarily a deal-breaker—utilities often have high payout ratios due to their stable revenue—but it does mean there’s not much wiggle room if earnings take a hit.
The company has a long track record of paying and increasing its dividend, which speaks to its reliability. However, investors should be mindful that future dividend hikes may be smaller due to financial constraints.
Dividend Growth and Safety
For long-term investors, dividend growth is just as important as the payout itself. ALLETE has consistently increased its dividend, but the growth rate is on the lower side. Over the past five years, the dividend has grown at an average annual rate of about 3%.
This level of growth is steady, but not particularly exciting. For those who rely on dividends to outpace inflation, ALLETE’s slow growth might not be enough.
Another key factor is the company’s financial health. With a high payout ratio and declining revenue, ALLETE’s ability to continue raising dividends could be tested in the coming years. The company still generates strong cash flow, but investors should monitor earnings trends closely.
Chart Analysis
The price action in ALLETE (ALE) has been in a clear uptrend over the past year, with both the 50-day and 200-day simple moving averages (SMA) sloping upward. The stock has shown strong momentum, with the price consistently staying above the 200-day moving average—a classic sign of bullish strength.
In the shorter term, the 50-day SMA has provided dynamic support, with the price testing it multiple times before bouncing higher. Recently, though, the stock has been moving sideways near its highs, which suggests a potential consolidation phase. This kind of price behavior often indicates that the market is digesting gains before making its next move.
Volume has been relatively stable, though there was a notable spike around April-May, which likely marked the beginning of the strong uptrend. Since then, volume has tapered off, which isn’t necessarily a bad sign but does suggest that bullish momentum may be cooling.
The RSI indicator, which measures overbought and oversold conditions, has been hovering in the mid-to-high range but hasn’t yet signaled extreme overbought levels. This suggests that while the stock has been strong, it hasn’t reached an unsustainable level where a pullback would be imminent.
The most recent candlesticks show relatively small daily price movements, reflecting lower volatility. The wicks on the latest candles indicate that sellers are stepping in near resistance levels, but there hasn’t been enough downward pressure to break below key support levels yet. If the stock can hold these levels, it may continue its upward trend, but any break below the 50-day SMA would signal a shift in momentum.
Analyst Ratings
📈 In recent months, ALLETE, Inc. (ALE) has seen both upgrades and downgrades from analysts, reflecting mixed views on its future performance. While some see strong growth potential, others are cautious due to valuation and industry challenges.
🔼 Upgrades
✅ JPMorgan Chase recently shifted its rating from “Underweight” to “Neutral,” setting a price target of $65. This move suggests a more balanced view of the company’s valuation and long-term growth potential.
✅ BofA Securities upgraded ALLETE from “Neutral” to “Buy,” raising its price target from $53 to $66. Analysts pointed to improving financial metrics and potential benefits from the company’s renewable energy investments as reasons for the boost.
🔽 Downgrades
⚠️ Guggenheim downgraded ALLETE from “Neutral” to “Sell,” adjusting the price target slightly from $53 to $54. The downgrade was based on concerns about the stock’s valuation and potential headwinds in the utility sector.
⚠️ BofA Securities also revised its outlook, shifting from “Buy” to “Neutral” and lowering the price target from $66 to $63. The firm cited concerns over near-term earnings pressure and regulatory uncertainties as key factors in its decision.
🎯 Consensus Price Target
💰 The consensus price target for ALLETE currently sits at around $66, indicating a modest upside from current levels. While some analysts remain bullish on the company’s long-term potential, others are taking a more cautious approach due to market conditions and industry challenges.
Earnings Report Summary
ALLETE, Inc. (NYSE: ALE) just released its latest earnings report, and while the numbers show some challenges, there are also some promising developments for the company moving forward.
How the Quarter Shaped Up
For the fourth quarter, ALLETE brought in $364.8 million in revenue, which was a drop from the $402.7 million reported in the same period last year. Net income came in slightly lower at $50.6 million, compared to $51.5 million a year ago. That meant earnings per share (EPS) landed at $0.87, just a touch below the $0.89 from last year.
A Look at the Full Year
For the full year, ALLETE posted total revenue of $1.53 billion, down from $1.88 billion in 2023. Net income also declined, coming in at $179.3 million, compared to $247.1 million the previous year. That translated to a $3.10 EPS, lower than $4.30 in 2023.
Breaking It Down by Business Segment
- Regulated Operations – This segment, which includes Minnesota Power, stayed relatively stable. Net income for the quarter was $34 million, the same as last year. The company credits this to changes in interim rates, though higher operating costs ate into those gains.
- ALLETE Clean Energy – This division saw a major drop in earnings, with net income at just $3.9 million, compared to a much stronger $54.8 million last year. The big difference? A large arbitration gain that boosted results in 2023 wasn’t repeated in 2024.
- Corporate and Other Businesses – This group, which includes New Energy Equity and BNI Energy, improved significantly. It pulled in $7.1 million in net income, reversing a $2.9 million loss from last year. The jump came largely from strong project sales at New Energy Equity.
Key Moves and What’s Ahead
One of the biggest developments is ALLETE’s pending merger with Canada Pension Plan Investment Board and Global Infrastructure Partners. The deal is expected to close by mid-2025, pending approvals.
On the regulatory side, Minnesota Power secured approval for a rate case settlement, with final rates set to roll out in early 2025. The company also got the green light for the Big Stone South Transmission project, which is aimed at boosting grid reliability and expanding renewable energy access.
Speaking of renewables, ALLETE is pushing forward with two new solar projects in northern Minnesota. These will account for about two-thirds of the solar expansion plan the company laid out in its Integrated Resource Plan.
What Leadership is Saying
ALLETE’s CEO, Bethany Owen, emphasized that despite some financial hurdles, the company is making big strides in its long-term sustainability goals. She pointed to the merger, regulatory approvals, and progress in renewables as major steps forward.
Meanwhile, CFO Steve Morris noted that results actually exceeded expectations, thanks to strong performances from New Energy Equity and ALLETE Clean Energy. He acknowledged that merger-related expenses had an impact but remained optimistic about the company’s future.
The Big Picture
ALLETE’s earnings report tells a story of transition. The company is dealing with lower revenue and income compared to last year, but it’s also making significant moves in renewable energy and corporate restructuring. With a major merger on the horizon and new solar projects in the works, ALLETE is positioning itself for the future—even if it means a bit of short-term turbulence along the way.
Financial Health and Stability
ALLETE’s financials show a company that is stable but facing some pressures.
- Total cash on hand is $32.8 million, which is relatively low for a company of this size.
- Debt levels are manageable, with total debt of $1.81 billion and a debt-to-equity ratio of 53.39%.
- Operating cash flow remains strong at $457.1 million, which is a positive sign for dividend sustainability.
The biggest concern is revenue, which has declined by 9.4% year-over-year. That’s not catastrophic, but it does raise questions about future earnings growth. If revenue continues to fall, ALLETE may have to make tough decisions regarding dividends and capital investments.
Valuation and Stock Performance
ALLETE’s stock isn’t trading at an extreme discount, but it’s also not overly expensive.
- The price-to-earnings (P/E) ratio stands at 21.12, which is slightly higher than some peers in the utility sector.
- The forward P/E of 18.28 suggests modest earnings growth expectations.
- The price-to-book ratio of 1.33 indicates the stock is fairly valued compared to its assets.
The stock has traded between $56.66 and $65.99 over the past year and is currently near the higher end of that range. ALLETE has been relatively steady compared to broader market volatility, which is expected for a utility stock. While it may not offer explosive growth, its stability makes it appealing for conservative investors.
Risks and Considerations
Like any investment, ALLETE has its risks.
One of the biggest concerns is its high payout ratio. When nearly all earnings are paid out as dividends, there’s little room for reinvestment or dividend growth. If earnings decline, ALLETE may need to slow down dividend hikes or even pause increases.
Another factor to consider is the company’s exposure to renewable energy. While ALLETE has made investments in clean energy, transitioning away from traditional power sources can be costly. If these investments don’t generate expected returns, profitability could take a hit.
Debt is another area to watch. While ALLETE’s debt levels aren’t alarmingly high, they are rising. If interest rates remain elevated, borrowing costs could eat into earnings and make it harder to fund dividend payments.
Finally, revenue declines are something to keep an eye on. A 9.4% drop year-over-year isn’t a small number, and if this trend continues, ALLETE could face financial pressures that impact its dividend policy.
Final Thoughts
ALLETE is a solid utility stock for investors looking for reliable dividend income. The 4.46% yield is attractive, and the company has a long history of paying dividends.
However, dividend growth has been slow, and the high payout ratio means future increases may be limited. With revenue declining and debt levels rising, investors should keep a close watch on financial trends.
For those who prioritize stability and consistent income, ALLETE remains a dependable choice. But for investors looking for strong dividend growth or a bargain valuation, it may not be the best fit.
Recent Comments