I know it doesn't sound sexy, but maybe our grandmothers were right. Slow and steady does indeed win the race when it comes to investing. Low beta stocks with steady dividends can really help you sleep at night. It's nice not having to worry about the next shoe dropping in Europe when owning these U.S. electric utilities. These companies serve their designated regions and likely have been providing electricity since the birth of your grandparents. They have withstood the test of the last 100 years and will continue to produce electricity generating steady dividends for their shareholders.
PPL Corporation (PPL) - Dividend Yield: 4.90%
PPL Corporation was founded in 1920 and is the former Pennsylvania Power & Light Company. The company provides electricity and natural gas to customers in Pennsylvania, Kentucky and the United Kingdom, serving approximately 10.5 million customers.
In terms of slow and steady, it doesn't get any slower and steadier than PPL Corporation. The stock has a beta of 0.12. It hardly moves, even with an average of 4 million shares traded daily. For a dividend investor that just wants nice steady dividends, it's hard to beat owning PPL.
The one negative to PPL is that the company is a little more leveraged than I would like. There's currently over $20 billion of debt on the books. Over the years the company has focused more on returning cash to shareholders rather than paying down debt. For past shareholders this has worked out great as the stock is near 52-week highs. I would advise investors looking to get in now to buy on a pullback.
American Electric Power Co., Inc. (AEP) - Dividend Yield: 3.90%
American Electric Power is an electric utility founded in 1906 that serves customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. Management is focused on reducing employee headcount to reduce costs and will achieve steady rate increases from its customers.
Overall American Electric Power is a good long-term bet for dividend investors. Analysts expect earnings to grow 4% to 6% annually. AEP has increased its dividend 5% annually since 2005. 85% of the company's business is regulated and rate increases will not be an issue.
Consolidated Edison Inc. (ED) - Dividend Yield: 4.20%
Consolidated Edison or ConEd is the primary electric utility in New York state serving all of New York City. The company has been in business since 1884 and traces its founding back to Thomas Edison and his Edison Illuminating Company of New York.
ConEd has lower debt than either PPL or AEP. Even during the Great Recession the company managed to increase its dividend every year. The company is about as predictable as it gets when it comes to operations. The company charges for electricity and can increase rates with inflation and pay out a stream of steady dividends.
Duke Energy Corporation (DUK) - Dividend Yield: 4.30%
Duke Energy is the largest electric power company in the US serving the southeast region as well as parts of Indiana, Ohio and Kentucky. The company also has operations in Canada and Latin America.
Duke is attractive because it serves the fast-growing southeastern section of the United States. The company benefits from population growth as well as expected rate increases. The international assets provide exposure to faster growing areas outside the US.
Last quarter, billionaires Israel Englander and Stanley Druckenmiller increased their stakes in Duke. Englander now owns 750,000 shares of Duke and Druckenmiller has 400,000 shares.
Southern Company (SO) - Dividend Yield: 4.30%
Southern Company serves Alabama, Georgia, Florida and Mississippi. Southern Company has a 4.0% dividend growth rate and a solid A rating from S&P. The dividend has been raised every year for the past 11 years.
The one negative to Southern Company is that the majority of their plants are coal-fired and will eventually need to be upgraded or shuttered. However, the transition to natural gas or nuclear will occur over the course of many years and will have no immediate impact on the company.
Last quarter Druckenmiller also purchased stock in Southern Company. He now owns 1.2 million shares in the company.
Dominion Resources, Inc. (D) - Dividend Yield: 4.00%
Dominion Resources is another electric utility based in Richmond, Virginia. The company owns the Cove Point LNG facility in Maryland where a court ruled that the company can export LNG. Dominion hopes to bring the plant online by 2017 to export about 750 million cubic feet a day.
Dominion, however, still needs approval from the Federal Energy Regulatory Commission and the Department of Energy. The company is hopeful and has already started talking to potential customers such as Japan's Sumitomo Corporation. Dominion plans to grow dividends 6% to 7% going forward.
PG&E Corp. (PCG) - Dividend Yield: 4.10%
PG&E is the former Pacific Gas & Electric Company that serves northern California. You may remember that the utility went bankrupt in 2001 as the company was forced to buy electric power from out of state suppliers and companies like Enron squeezed the utility. The utility emerged from bankruptcy in 2004 and is now a much leaner and profitable organization.
Druckenmiller also bought into PG&E last quarter with a 619,000 share buy. He's following in the steps of billionaire David Shaw who has a 1.7 million share stake.
Obviously the smart money has been buying utility stocks. Most are trading near 52-week highs, much like the overall S&P 500 Index. Investors are on the hunt for yield and an investment paying over 4% is going to attract buyers. Our recommendation is that if you buy these utilities, do so for the dividend and not the stock price. Matter of fact, don't pay attention to the stock price. Buy the stock, put them away like your grandparents did, and collect dividend checks. If that style isn't for you, best off looking elsewhere.