3 Stocks For A Safe Retirement Portfolio

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 |  Includes: DUK, EPB, EXC
by: Efsinvestment

By Siraj Sarwar

The energy and utility sectors have been a favorite place for income oriented investors over time. Now that the overall economy is starting to recover, such investors can attempt to reap the benefit from any rise in oil and gas commodity prices and seek protection from the potential risk of inflation by investing in energy and utility stocks with stable and high yields. Many energy and utility stocks have a history of hiking dividends and investors can use them as defensive stocks in their portfolios, including retirement portfolios. In this article, I focus on three companies from the energy and utility sector which combine strong growth potential with solid financial positions and attractive dividend yields.

Stocks

Dividend

Dividend Yield

Payout ratio [ttm]

Revenue Growth

Profit Margin

EPB

2.44

5.90%

10.6%

67.9

EXC

2.10

6.23%

149.40%

10.7%

4.9

DUK

3.06

4.35%

101.15%

15.5%

9%

Click to enlarge

Morningstar.com

El Paso Pipeline Partners, L.P. (NYSE:EPB) owns and operates natural gas transportation pipelines and storage assets. Recently, the partnership announced a quarterly distribution of $0.61 cents/share. As the below chart demonstrates, the partnership has a long history of consistently increasing dividends.

EPB Dividend Chart

EPB Dividend data by YCharts

Recently, the partnership increased its distributions from $0.58 cents/share to $0.61 cents/share. In the past five years, the partnership increased its distributions above 112%. In the past year alone, the partnership was able to enlarge distributions by $19.61 per share.

On the other hand, over the past five years, its stock has been displaying exceptional performance and the stock gained nearly 75.41%. In the past year alone, the stock gained nearly 21.74% while analysts still believe the stock can grow further as it is trading below its fair value estimates. In addition, its strong Earnings Per Share (EPS) growth helps it to keep appreciating its price.

In addition, the partnership's strong investment strategy and solid financials led it to achieve massive results in past years. In the past three years, on average, the partnership has been able to increase revenue by 10.6%. Amazingly, in the past three years, on average, the partnership was able to grow EPS by 9.4%. This is a big achievement for any company in a difficult macro-economic environment.

Exelon Corp. (NYSE:EXC) is a utility services holding company engaged in the generation and energy delivery businesses. The company used to pay a quarterly dividend of $0.5250 cents/share. For the full year of 2012, the company paid dividends of $2.10 per share. However, recently it announced a dividend cut to maintain its investment grade rating. Apparently, the market did not care that much about the dividend cut. The stock actually returned about 15% since January. Even after the dividend cut, the stock offers a forward yield of 3.7%.

EXC Dividend Chart

EXC Dividend data by YCharts

On the other hand, the stock looks undervalued at present as analysts have a fair value estimate of $42 per share. At the time of writing the stock is trading at $33.69, representing a decline of 13.39% in the past year. However, I believe with forward P/E of 14.71 the stock offers an attractive opportunity for both dividend and value investors.

Exelon has shown exceptional growth both in revenues and earnings. In the past three years, on average, the company has been able to increase revenue by 10.7%. Amazingly, in the past year alone, the company was able to grow operating cash flows by nearly $1,278 million. This is a big achievement for any company in a difficult macro-economic environment. On the other hand, the company is spending heavily in growth opportunities, investing $5,810 million in the last year alone, representing an increase of $1,768 million.

Duke Energy Corporation (NYSE:DUK) is an energy company. Its regulated utility operations serve 4 million customers located in five states in the Southeast and Midwest United States, representing a population of approximately 12 million people. Recently, the company announced a quarterly dividend of $0.765 cents per share. For the full year of 2012, the company paid a dividend of $3.06 per share.

DUK Dividend Chart

DUK Dividend data by YCharts

On the other hand, the stock looks a bit pricey with a P/E ratio of 22.93. Over the year, the stock has shown exceptional growth with few shortfalls. At present, the stock is trading at its 52 week high of $70.40 per share. I believe, with a forward P/E of 15.34, its shares will steadily grow over the next year.

Duke Energy has shown exceptional growth both in revenues and earnings. In the past three years, on average, the company has been able to increase revenue by 15.5%. In addition, in the past three years, on average, the company was able to grow EPS by 7.2%.

Furthermore, since 2010, its operating cash flows stretched by nearly $1 billion. This is a big achievement for any company in a difficult macro-economic environment. On the other hand, the company is spending heavily in growth opportunities. The company has invested $5,501 million in the last year alone, representing an increase of $1,129 million over the past year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Efsinvestment is a team of analysts. This article was written by Siraj Sarwar, one of our equity analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.