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Introduction:

As the market climb continues to squeeze dividend margins of popular holdings for income investors sometimes we are forced to look in new places to replace some of our lost yield. I ran a stock screen using the following four criteria and found 6 nice mid-cap utility stocks that offer nice yield at a fair value that I would like to discuss.

Screen Criteria:

  • Market capitalization greater than 2B and less than 10B
  • P/E less than 16
  • Dividend yield greater than 3%
  • Return on equity greater than 5%

Investing In Utility Stocks:

Since all of these companies are mid-cap utility companies many investors may not be familiar with their generating capacity or customer bases. It is important when selecting a utility company that you select companies from regions that have reliable and growing customer bases. I will therefore provide a brief profile of each of these companies' capacity and customers before getting into more specific performance data. Over the last four years, every one of these stocks to varying degrees has outperformed the broader Dow Jones Utility Index (^DJU). These comparisons can be seen in the illustrated graphs for each stock. All of the stocks mentioned here I have rated as buys for income seeking investors.

Great Plains Energy Inc (NYSE:GXP)

  • Generating Capacity and Customer Base

GXP generates electricity through coal, nuclear, natural gas and oil, and wind resources. It has approximately 6,600 megawatts of generating capacity. The company sells electricity to 825,300 customers in the states of Missouri and Kansas, including 726,100 residences; 96,600 commercial firms; and 2,600 industrials, municipalities, and other electric utilities.

  • Performance

GXP has a current annual dividend yield of 3.6% and sports a current dividend payout ratio of 56%. In 2009 GXP cut its dividend in half to put it on a much more sustainable payout ratio. GXP used this savings to help reduce its debt and stabilize its balance sheet. As a result GXP is more solid footing today than it was four years ago. This cut has been followed by dividend increases in each of the last two years and I believe there will be more increases in the years to come.

20082009201020112012
Revenue1.67B1.97B2.26B2.32B2.31B
Net Income119.5M151.6M211.7M174.4M199.9M

(click to enlarge)

Idacorp Inc (NYSE:IDA)

  • Generating Capacity and Customer Base

IDA owns and operates 17 hydroelectric generating plants located in southern Idaho and eastern Oregon, as well as three natural gas-fired plants situated in southern Idaho; and owns interests in three coal-fired steam electric generating plants located in Wyoming, Nevada, and Oregon. As of December 31, 2012, the company provided electric service to approximately 501,000 general business customers; and had a network of approximately 4,851 pole miles of high-voltage transmission lines, 24 step-up transmission substations located at power plants, 24 transmission substations, 10 switching stations, 228 energized distribution substations, and approximately 26,764 pole miles of distribution lines.

  • Performance

IDA has a current annual dividend yield of 3.1% and sports a current dividend payout ratio of 42%. IDA has increased its dividend payments by 26% over the last two years. IDA's low payout ratio when coupled with its increasing net income demonstrated over the last five years indicates that significant dividend increases may be in store over the coming years.

20082009201020112012
Revenue960.41M1.05B1.04B1.02B1.06B
Net Income98.41M124.35M142.8M166.69M168.76M

(click to enlarge)

NV Energy Inc (NYSE:NVE)

  • Generating Capacity and Customer Base

NVE generates electricity from its gas, oil and coal generating units. It also delivers natural gas service. As of December 31, 2012, the company served approximately 850,000 electric customers primarily in Las Vegas, North Las Vegas, Henderson, and adjoining areas; 324,000 electric customers in the western, central, and northeastern Nevada, including the cities of Reno, Sparks, Carson City, and Elko; and approximately 153,000 customers with natural gas service in Reno/Sparks area of Nevada. It has a generation capacity of approximately 6,078 megawatts through 61 generating units.

  • Performance

NVE has a current annual dividend yield of 3.6% and sports a current dividend payout ratio of 50%. NVE has seen its net income increase by 54% over the last five years even though its revenue has decreased by 15%. NVE has increased its dividend each of the last five years, and has increased payments by an impressive 18% annualized over this same time period. NVE's low payout ratio coupled with its past commitment to increased dividend payments should lead to increasing dividend payments in the future as well.

20082009201020112012
Revenue3.53B3.59B3.28B2.94B2.98B
Net Income208.89M182.94M226.98M163.43M321.95M

(click to enlarge)

BBB Rating:

Pinnacle West Capital Corp (NYSE:PNW)

  • Generating Capacity and Customer Base

PNW engages in the generation, transmission, and distribution of electricity from coal, nuclear, gas, oil and solar resources. The company offers electric service to approximately 1.1 million customers primarily in the State of Arizona. It owns or leases approximately 6,370 megawatts of regulated generation capacity.

  • Performance

PNW has a current annual dividend yield of 3.6% and sports a current dividend payout ratio of 58%. PNW has been a reliable source of utility generated income over the last five years. It just recently increased its dividend payments in the winter of 2012. PNW has seen its profitability increase over the last five years even though its revenue has remained relatively flat. I believe PNW's focus on increased profitability will lead to more dividend increases in the future.

20082009201020112012
Revenue3.31B3.3B3.26B3.24B3.3B
Net Income231.3M82.01M330.44M328.17M387.37M

(click to enlarge)

SCANA Corp (NYSE:SCG)

  • Generating Capacity and Customer Base

SCG owns nuclear, coal, hydro, oil and gas, and biomass generating facilities. The company also purchases, sells and transports natural gas. In addition, it owns 2 liquefied natural gas plants in Charleston, and Salley, South Carolina. As of December 31, 2012, the company supplied electricity to approximately 670,000 customers; and provides natural gas to approximately 819,600 residential, commercial, and industrial customers in North Carolina and South Carolina, as well as markets natural gas to approximately 450,000 customers in Georgia.

  • Performance

SCG has a current annual dividend yield of 3.8% and sports a current dividend payout ratio of 60%. SCG has increased its dividend payments each of the last 12 years with a five-year average growth rate of 2.28%. SCG is still well within sustainable limits to meet its dividend obligations and should continue raising its dividend in the years to follow.

20082009201020112012
Revenue5.32B4.24B4.6B4.41B4.18B
Net Income353M357M376M387M420M

(click to enlarge)

Westar Energy Inc (NYSE:WR)

  • Generating Capacity and Customer Base

WR produces electricity through various sources, including coal, wind, nuclear, natural gas, diesel, uranium and landfill gas. WR sells electricity in retail to residential, commercial, and industrial customers, as well as for lighting public streets and highways; and electricity in wholesale to electric cooperatives, municipalities, and other electric utilities in central and northeastern Kansas, including the cities of Topeka, Lawrence, Manhattan, Salina, and Hutchinson, as well as in south-central and southeastern Kansas, comprising the city of Wichita. As of March 21, 2013, it served 700,000 customers; and operated 7,400 megawatts of electric generation capacity.

  • Performance

WR has a current annual dividend yield of 4.1% and sports a current dividend payout ratio of 57%. WR has increased its dividend payments for each of the last eight years and has an average five-year growth rate of 3.88%. WR has not only increased its revenue over the last five years but has seen its net income significantly increase as well. Just like all of the other stocks mentioned here we expect dividend increases to continue in years to come.

20082009201020112012
Revenue1.84B1.86B2.06B2.17B2.25B
Net Income178.14M141.33M203.9M229.47M274.37M

(click to enlarge)

Summary:

Even though each of these stocks demonstrates different levels of revenue growth all of them have increased their net incomes over the last five years, and all of the stocks except for GXP have significantly outpaced the broader (^DJU) utility index as far as stock price performance is concerned. While markets and economies may influence revenue growth of these companies outside of their control, these companies have demonstrated a great ability to control internal cost thereby increasing profitability. Please comment in the section below and let me know what you think of these Mid-Cap Utility stocks.

Source: 6 Mid-Cap Electric Utilities For An Income Portfolio