Controlled islanding is considered to be the last countermeasure to prevent a system-wide blackout in case of cascading failures. It splits the system into self-sustained islands to maintain transient stability at the expense of possible loss of load. Generator coherence identification is critical to controlled islanding scheme as it helps identify the optimal cut-set to maintain the transient stability of the post-islanding systems. This paper presents a novel approach for online generator coherency identification using phasor measurement unit (PMU) data and dynamic time warping (DTW). Results from the coherence identification are used to further cluster non-generator buses using spectral clustering with the objective of minimizing power flow disruptions. The proposed approach is validated and compared to existing methods on the IEEE 39-bus system and WECC 179-bus system, through which its advantages are demonstrated.