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PPL Corp. (NYSE:PPL) offers investors a high and attractive dividend yield of 5.05%. Also, analysts are projecting a healthy next five years earnings growth of 7% on average for the company. Moreover, the company has a cheap forward P/E of 13.3x as compared to its competitors and coupled with its satisfactory past financial performance I recommend income seeking investors to buy the stock.

PPL earnings for the first quarter 2013 came out to be 71 cents per share, in line with analysts' consensus and 1 cent higher as compared to corresponding period last year. The earnings for the recent quarter were positively affected by greater contribution from regulated operations offset by lower margins in East and West operating regions. The following table shows the earnings break down and YoY comparison across different reporting divisions of PPL.


(Click to enlarge)

Source: Investors Presentation

PPL top line displayed somewhat disappointing results by missing the analysts' consensus by $0.8 billion, down approximately 40%. The revenues of the company were adversely affected by wholesale energy segment. However, the decrease in revenue also led to lower operating expenditures, which were down 42% YoY basis, as energy purchase expenses declined.

Operational and Regulatory Updates

The two nuclear units, 1 and 2, at the Susquehanna nuclear plant have had issues with turbine blade cracking which led to frequent outages last year. The company is working on a long term solution and replacing turbine components which have currently forced unit 2 to go off line for maintenance. The ongoing outages and maintenance of the two units are expected to affect current year earnings by $0.05 per share. For the U.K regulated operations, PPL is expecting to file its business plan by July next month, for fast track consideration of the company's rate plan. It will be determined by February next year whether plan will be fast tracked or not.

Rate case filing and approval off rates increase is an important catalyst for the bottom line growth of the company. PPL is projecting rate base growth of 7.7% on average from 2013 up till 2017. The following chart reflects the projected regulated rate base growth of the company.


(Click to enlarge)

Source: Investors Presentation

Dividend and Debt

Currently PPL offers an impressive and above industry average dividend yield of 5.05%. The last dividend increase announced by PPL was of 2.1%, resulting in an annualized dividend rate of $1.47 per share. Dividends offered by the company are sustainable and likely to increase in future, evident from the fact that PPL has been paying quarterly dividends for more than 260 consecutive quarters and has increased dividends 11 times in the last 12 years.

PPL has a highly leveraged balance sheet with debt to equity ratio of approximately 200% which poses a threat to the company's financial flexibility. However, it has a modest interest coverage ratio of 3.65x. The following table shows the debt repayments for PPL for the next five years.


(Click to enlarge)

Source: Investors Presentation

Outlook

PPL earnings guidance range for current year 2013 is $2.15- $2.40 per share. Earnings per share for the ongoing year are expected to be lower than the prior year's earnings mainly due to lower Supply segment earnings and share dilution. The management also announced that PPL is reducing its yearly equity needs by $100 million. On the other side, analysts are forecasting PPL to earn $2.31 per share for the full year 2013 and experience a healthy next five years growth rate of 7% per year.

Valuations

PPL seems to be attractively valued at a forward P/E of 13.3x, which is lower than its peers as shown in the table below. Also, PPL offers a high and above industry average dividend yield of 5.05% and has an attractive next five years growth rate of 7% per year for the next five years. Therefore, I recommend income seeking investors to buy the stock.

PPL

Ameren Corporation (NYSE:AEE)

Southern Company (NYSE:SO)

Forward P/E

13.3x

15x

15.5%

Dividend Yield

5.05%

4.6%

4.6%

Next 5 years growth rate

7%

-

4.8%

Source: Yahoo finance

Source: High Dividend Yield And A Cheap Forward P/E Make PPL Corp. Attractive