Utility company stocks have long been the province of "widows and orphans" and retirees due to their safety, stability and high yields. Now with interest rates being depressed across the entire maturity spectrum, utility stocks (and dividend stocks in general) are becoming of greater interest to an ever broader group of investors.
Today we will examine the fifteen highest yielding utility stocks that are represented in the Standard & Poor's 500 Stock Index. The first five companies are: Exelon Corporation, Pepco Holdings, Inc., FirstEnergy Corp., Entergy Corporation and TECO Energy, Inc.
Exelon Corporation (EXC) 7.17% Yield
The stock closed at $29.29 giving the company a market cap of $25.02 billion. Exelon is a utility services holding company that delivers electricity and natural gas to customers in Maryland, Illinois and Pennsylvania. The company is based in Chicago, Illinois. Book value is $25.54 per share. Earnings are estimated to fall from an estimated $2.85 in the year just ended to $2.54 this year. The annual dividend is $2.10 and the last quarterly dividend of $0.525 per share was paid December 10, 2012. This year's estimated payout ratio is 83%.
As a caveat investors should know that a dividend cut is likely in the next quarter. Although the stock is down significantly since the CEO stated during the last conference call that the dividend policy may need to be revisited in the next six months we doubt if the potential dividend cut has been fully discounted. We have heard speculation that the dividend could go as low as $1.00 per share - if that were to be the case the stock could have downside all the way to $20. Therefore, we would avoid Exelon until the dividend is recast at a sustainable level.
Pepco Holdings, Inc. (POM) 5.66% Yield
The stock closed at $19.08 giving the company a market cap of $4.38 billion. Pepco is a utility company that engages in the transmission, distribution and supply of electricity and natural gas. Book value is $19.41 per share. The annual dividend is $1.08 per share and the last quarterly dividend of $0.27 was paid December 30, 2012. Earnings per share are expected to increase from an estimated $1.20 in the year just ended to $1.26 this year. The estimated payout ratio this year is 86%. The payout ratio is much higher than we would like but we see the dividend as both sustainable and stable in our opinion.
FirstEnergy Corp. (FE) 5.52% Yield
The stock closed at $39.89 giving the company a market cap of $16.68 billion. FirstEnergy operates as a diversified energy company engaging in the generation, transmission and distribution of electricity. Book value is $32.12 per share. The annual dividend is $2.20 and the last quarterly dividend of $0.55 was paid December 1, 2012. The dividend is well supported by earnings per share that are estimated to be $3.34 in the year just ended and $3.00 this year. The estimated payout ratio this year is 73%. By the numbers this one looks good on its face, however, we are worried about the regulatory environment in New York, and, thus all other things being equal we would place our money elsewhere (such as Entergy).
Entergy Corporation (ETR) 5.26% Yield
The stock closed at $63.07 giving the company a market cap of $11.21 billion. Entergy engages in the production of electrical power and retail electric distribution in Arkansas, Mississippi, Texas and Louisiana. The annual dividend is $3.32 and the last quarterly dividend of $0.83 was paid on December 3, 2012. Earnings per share are estimated at $5.52 in the year just ended and are slated to be $5.07 this year. Book value is $51.73 per share. The estimated payout ratio this year is 65%. The dividend has been raised twice in the last five years. We like the Entergy numbers and feel that not only is the dividend extremely secure but that it will grow in future years.
TECO Energy, Inc. (TE) 5.13% Yield
The stock closed at $17.14 giving the company a market cap of $3.71 billion. TECO is an energy related holding company primarily engaging in regulated utility operations. Book value is $10.60 per share. The annual dividend is $0.88 and the last quarterly dividend of $0.22 was paid November 27, 2012. Earnings per share are estimated to be $1.18 in the year just ended and are slated to be $ 1.14 this year. Since the dividend was reduced in 2003 the dividend has been gradually increased from $0.76 per year to its present rate. The estimated payout ratio for this year is 77%.We feel the dividend is secure but do not see much, if any, near to mid term upside in the dividend.
NOTE: we calculate our payout ratios using the indicated dividend and the earnings estimate for the current year rather than the more common backward looking calculation
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.