Utilities sector

[EricL]

Had a new article posted this afternoon with my thoughts on the sector. Valuations on most of the popular utility stocks are pretty high right now. Guessing it will take another rate hike scare before we see prices come down again.

[crimsonghost747]

The thing is, IF the FED does increase their interest rates it will be a very small increase. Of course gradually they can keep increasing them as long as they see fit but we won't see any huge changes in the coming years... and during all that time we will still be in a very low rate environment. If an utility stock is very stable and provides 2-4% dividend, usually increasing dividends often, then it's going to take a lot of rate hikes if you are expecting high quality bonds to compete with that.

However I think that the recent volatility together with the ATH prices was the real reason that utilities jumped so much last year. We have been hitting ATHs for a long time now and lets face it, there are a thousand things to be worried about economically speaking. A lot of people still think it's time for a downward correction (myself included) and so people let go of the more risky stocks and buy utilities.

[Roadmap2Retire]

My only exposure to utilities was via an ETF, which I ended up selling yesterday. Looking to initiate a position in one or more of the following stocks instead of using an ETF.

• Diversified Utilities
  - Algonquin Power & Utilities Corp (AQN.TO)
  - Atco Ltd (ACO.X.TO) / Canadian Utilities (CU.TO)
  - Brookfield Infrastructure Partners LP (BIP.UN.TO) (BIP)
  - Brookfield Renewable Energy Partners LP (BEP.UN.TO)
  - Duke Energy Corp (DUK)
  
• Electric Utilities
  - Consolidated Edison Inc (ED)
  - Fortis Inc (FTS.TO)
  - The Southern Company (SO)
  
• Water Utilities
  - American Water Works (AWK)
  - Aqua America (WTR)
  
• Gas Utilities
  - ONEOK Inc (OKE)
  

Any other recommendations for companies I should be looking at?

[EricL]

I'm currently doing research on an article covering a bunch of the utilities on the CCC list.

Just a quick glance at what I have so far I'd toss out ES, D, DUK, MDU, NJR, NWE, SCG, SO, VVC, WEC and XEL as some ideas worth your due diligence.

[crimsonghost747]

Can't really help you with the others but WTR was one of my first purchases in North America and I've been very happy with them. Extremely satisfied with what the management is doing, constant small aquisitions that add more customers and thus help to bring up the EPS in a regulated market. Also really optimistic about their infrastructure renawals as they are getting a lot of tax benefits from those in certain states... still not exactly free repairs but not far from it. And new infra always means less maintenance cost and better service for customers. So basically: improving service & reducing maintenance costs and having someone else pay for it.

I do think the current shareprice is a little high and for that reason I haven't added to my position recently. There simply won't be any big increases in EPS but it does keep creeping up slowly. That is fine by me but the current PE of 19 and div. yield of 2.60% are more fitting for a company with more growth potential. Many people seem to think that utilities will be taking a dive when the eventual interest rate increase by the FED happens, that might be a better opportunity to get into WTR.

Also keep in mind that they do have a share repurchase program but still their # of outstanding shares does seem to be increasing rather than decreasing. 2 simple reasons for this: Firstly the company isn't really using much of the already approved buybacks simply because the valuation is too high and secondly because part of the DRIP program's shares are newly issued ones instead of them being bought from the market.

Long story short: great company but in my opinion it's too expensive at the moment.

[Roadmap2Retire]

Thanks for the feedback, Eric and crimsonghost747.

Eric,
I am not familiar with a few of those names - will check them out.

crimsonghost747,
Agree that WTR is a great well run company. Really good yield and div growth rate - has a nice pace of div raises year after year. I agree that the stock is a bit expensive, although its starting to get more attractive with each passing day, now that its in the $25 range.

Just saw a timely article by Chuck Carnevale covering ED, SCG, SO, WEC, XEL.

[Dividend Watcher]

R2R, I second much of Eric's list although you have some Canadian utes on yours which would probably be advantageous for you since there's no currency exchange.

I'd also add AVA & LNT.

The one thing I don't understand is everyone's infatuation with ED. They're in NYS where the regulators are a pain in the ass, the population is very NIMBY when it comes to high voltage transmission and they have little open space to add to their generation sources without a long transmission corridor. I agree, they're a well-run organization; just look at how well they recovered from Hurricane Sandy when much of their underground distribution system was underwater. It's the outside constraints that really holds them back.

[Roadmap2Retire]

Thanks for the tip, DW.

Havent heard of those two companies - will check them out.

[EricL]

(06-12-2015, 08:52 PM)Dividend Watcher Wrote: R2R, I second much of Eric's list although you have some Canadian utes on yours which would probably be advantageous for you since there's no currency exchange.

I'd also add AVA & LNT.

The one thing I don't understand is everyone's infatuation with ED. They're in NYS where the regulators are a pain in the ass, the population is very NIMBY when it comes to high voltage transmission and they have little open space to add to their generation sources without a long transmission corridor. I agree, they're a well-run organization; just look at how well they recovered from Hurricane Sandy when much of their underground distribution system was underwater. It's the outside constraints that really holds them back.

Second highest yield on my utility watch list at 4.52% and has produced 41 years of increasing dividends. Not a buy for total return but a nice stock for income investors.

[800peace]

I developed an analysis specific to the Utility Sector. My analysis looks at dividends, financial statements, and valuations specific to the utility sector. I look for dividends, but not at the expense of total return. Lastly, I back-test the criteria, and check for alpha (S&P Capital IQ database and P123 database management system). Below are some companies I think have good prospects for income and total return.

PPL Corp (PPL) Yield 4.94%

Suburban Propane Partners LP (SPH) Yield 8.63%

Brookfield Renewable Energy Partners LP (BEP) Yield 5.64%

SCANA Corp (SCG) Yield 4.33%

SJW Corp. (SJW) Yield 2.55%

[EricL]

Finally got done with my utilities article last night. Many hours of data collection for this one and I think it turned out well.

Hope you enjoy!

Top 10 Utilities For Dividend Growth And Income

[Roadmap2Retire]

Great article, Eric.
Thanks for the data collection and writeup. Im going thru a similar exercise and was planning on sharing a post on my blog next week.