Black Hills Corporation (BKH): Dividend King or Risky Gamble?

The "Dividend King" title—awarded to companies with 50+ years of consecutive payout increases—has long been a crown jewel for Black Hills Corporation (BKH). With 55 years of dividend growth, BKH has attracted income-seeking investors for decades. Yet beneath the surface, two critical threats loom: persistent share dilution eroding earnings per share (EPS) and soaring regulatory compliance costs. These risks now cast a shadow over the firm’s ability to sustain its dividend, even as it navigates a labyrinth of pending regulatory approvals. Investors must ask: Is this a stock to buy—or a dividend trap?

The Dilution Dilemma: Shares Rising, EPS Stagnant

Black Hills has issued shares consistently since 2020, with diluted shares outstanding swelling from 62 million to a projected 70 million by 2024—a 22.6% increase in just five years. Meanwhile, diluted EPS peaked at $3.97 in 2022 but has since flatlined at $3.91 in both 2023 and 2024. This divergence is stark:

The math is clear: every new share dilutes the earnings available to existing shareholders, squeezing the EPS cushion that supports dividends. BKH’s dividend payout ratio—dividends divided by EPS—has already edged upward. At the midpoint of its 2024 EPS guidance ($3.96), the payout ratio hits 63% (based on a $2.50 annual dividend). If EPS growth falters further, this ratio could climb into unsustainable territory.

Regulatory Costs: A $453 Million Elephant in the Room

Black Hills has poured over $453 million since 2020 into regulatory compliance projects, primarily for natural gas infrastructure upgrades in Nebraska. This spending, tied to mandates like pipeline safety and system integrity, is a capital drain that must be recouped through rate hikes.

The problem? Rate approvals are uncertain. As of May 2025, BKH faces pending decisions on:
- A $34.9 million annual revenue increase for Nebraska Gas, pending before the Nebraska Public Service Commission.
- A $17 million boost for Kansas Gas, awaiting the Kansas Corporation Commission’s nod.

Failure to secure these hikes would force the company to absorb costs without offsetting revenue—a direct threat to earnings and dividends. Even if approved, the delays themselves impose risks: BKH’s 2023 EPS dipped due to delayed rate adjustments, and similar hiccups could recur.

The Dividend Sustainability Test: Can BKH Pass?

BKH’s dividend—$0.65 per quarter, or $2.60 annually—has been a pillar of its appeal. Yet the numbers tell a cautionary tale:
- The 2025 EPS guidance of $4.00–$4.20 relies entirely on constructive regulatory outcomes.
- A $4.20 EPS would leave just $1.60 per share after dividends—a thin margin for error.
- BKH’s credit rating (Baa2/BBB) remains stable, but rising debt to fund projects could strain this advantage.

Consider the opportunity cost: At a recent price of around $45, BKH’s dividend yields a meager 5.8%—a payout ratio that leaves little room for error. Compare this to TransCanada (TRP) or NextEra Energy (NEE), which offer similar yields with stronger EPS growth trajectories.

Conclusion: Dividend King or Dividend Endgame?

Black Hills Corporation’s “Dividend King” status is a powerful draw, but the writing is on the wall. Share dilution has capped EPS growth, while regulatory compliance costs and uncertain rate approvals introduce material risks to cash flow. Even a small misstep—say, a denied rate hike or delayed project—could force dividend cuts.

For income investors, BKH’s 5.8% yield is now a high-risk bet. The stock is better suited to speculators willing to gamble on regulatory approvals than to those seeking steady, reliable payouts. In a market where utilities like Dominion Energy (D) or PPL Corporation (PPL) offer safer yields, BKH’s risks are hard to justify.

Action to take: Proceed with caution. Monitor BKH’s pending rate cases closely—and consider reallocating funds to utilities with clearer growth paths. The Dividend King’s crown may soon tarnish.

Data as of May 13, 2025.