3 Utilities With Sustainable 5% Dividend Yields

 |  Includes: APU, FE, SPH
by: Dave Dierking

While some people certainly invest in utilities for growth potential, many like them for their dividend yields. While money market funds are still yielding just several basis points, and the rest of the fixed-income market is struggling to provide meaningful yields as the Fed continues to keep rates low, some investors are turning to dividend paying stocks to fill in the income deficit.

Utilities have the benefit of being economically defensive to the built-in demand for services like electricity and water. After all, no matter how bad the economy is, people will always need basic utility services. And some companies are especially adept at kicking out a good chunk of that income to shareholders as dividends.

Some of the utilities with especially high yields often times warrant a bit of skepticism. A recent dive in the stock price could cause the yield to look artificially high. Also, a high yield could be viewed as unsustainable. Fortunately, there are a few higher yields out there that appear to be sustainable. Each supplies a basic utility need and provides a current yield of over 5%.

FirstEnergy (NYSE:FE)

FirstEnergy is an electric utility provider that primarily serves the eastern United States. The company currently sports a hefty 5.9% yield. While the dividend hasn't been raised since late 2007, FirstEnergy has been able to maintain that dividend since that point.

The stock price has hovered in a range for the last few years, and looking at the results we see a company that is doing more sustaining than demonstrating growth. That can be confirmed by looking at past growth as well as future growth estimates. The company has averaged -6% annual growth for the last five years (yes, negative growth) and is only forecast to grow at a 2%-3% rate for the next five years.

FirstEnergy might be on a more stagnant path instead of a growth path, and that may warrant keeping a closer eye on the stock. But for the past five years the company has maintained a solid dividend history.

Suburban Propane Partners (NYSE:SPH)

Suburban Propane engages in the distribution of all types of fuels such as propane and natural gas. The company had a bit of trouble in the past quarter. While revenues rose over 60% year over year, reported earnings missed Wall Street expectations, delivering a loss of $0.77 per share vs. expectations of a $0.57 loss. The earnings miss affected the stock price, which dropped almost 10%, but there's still reason for optimism. As fracking for natural gas continues to increase, the company figures to benefit from the improved demand for delivery of these new natural gas reserves.

Despite the recent trouble with the stock, the dividend has remained intact. At a current yield of 7.7%, it remains one of the best yields in the industry. Better still, that dividend has remained strong. The dividend payout has remained relatively flat in recent years, but has demonstrated a solid long-term dividend payout history.

Amerigas Partners (NYSE:APU)

Amerigas Partners is one of the largest distributors of propane in the country. If you're searching for a solid dividend growth history in the utility sector, look no further than Amerigas. This company pays a current 6.8% annual yield and has been growing the dividend steadily over the past eight years.

But like Suburban Propane, the company missed on revenue and earnings in the most recent quarter, and saw its stock price drop about 10%. As a result, future revenue and earnings estimates are also starting to come down.

But there is reason for optimism. Analysts are still forecasting modest growth for the next several years and, compared to other companies within the industry, valuation on the stock looks relatively cheap. Amerigas is also working through the integration of Heritage Propane into its current operation, and once that is completed it should enhance the company's production and distribution capabilities.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.