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Overview

Utility stocks are common for risk averse and/or dividend investors as they offer safe and steady revenue streams, but I feel that utilities should be a part of any investor's portfolio. In this article I will list and review three electric utilities that I feel are solid buys for long term investors. In looking at why I find these stocks attractive, I will be reviewing each stock's history, stock price movement, current valuation, financials, earnings, dividend, and company outlook.

Stock #1

Consolidated Edison (NYSE:ED) engages in the sale of electricity and energy related products and services to wholesale and retail customers. ED also participates in energy infrastructure projects. The company was founded in 1884 and is based in New York, New York.

Financials

Profit Margin Quarterly 6.10%
Return on Assets 2.47%
Return on Equity 8.56%
Return on Invested Capital 4.17%
Debt to Equity Ratio 1.04
Revenue TTM 12.34B
Revenue Per Share Quarterly 9.58
Revenue Quarterly Year Over Year Growth 1.70%

In 2011 and 2012, ED's revenue declined, falling under $13B for the first times since 2007. Revenue has been on an uptick this year, having increased compared to 2012 in both Q1 and Q2.

Current Valuation and Recent Trading Activity

ED has a price to earnings value of 16.28x and a price to book value of 1.38x with earnings per share of $3.43. ED closed Thursday at $54.63, $9.40 shy of its 52-week high and $1.00 higher than its 52-week low.

ED's price has dropped significantly the past month, from over $60 to its current price. I think this presents a nice opportunity for long term investors.

Earnings

For Q2, ED reported earnings per share of $0.54 per share. This was significantly lower than the same period last year. This doesn't worry me too much because ED has had brief periods of lower and declining earnings in the past, but over the long haul ED has a solid history of earnings growth.


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Dividend

This year, ED raised its quarterly dividend from $0.605 per share to $0.615 per share. ED's dividend increases are commonplace as they have occurred for nearly forty consecutive years. But for the past several years, the company has made 1/2 cent increases, so seeing the bump to a full cent increase is nice to see.

ED's dividend currently yields 4.50% and future yearly increases are nearly guaranteed.

Company Outlook

As ED continues investing in its infrastructure and equipment, the company will have a tough time increasing earnings in the next couple of years, but I feel that the company's long term potential is as strong as it ever has been. I also believe that investors have oversold this company based on recent poor earnings. Because of these factors I consider ED a solid buy for long term investors.

Stock #2

Hawaiian Electric Industries Inc. (NYSE:HE) supplies power to 95% of Hawaii's population through its electric utilities: Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited. The company was founded in 1891 and is based in Honolulu, Hawaii.

Financials

Profit Margin Quarterly 5.09%
Return on Assets 1.36%
Return on Equity 8.57%
Return on Invested Capital 4.08%
Debt to Equity Ratio 1.07
Revenue TTM 3.29B
Revenue Per Share Quarterly 8.03
Revenue Quarterly Year Over Year Growth -6.74%

HE's long term revenue growth has been substantial. Like any utility, it does often face short term challenges but the company's diversity through its banking and financial services has allowed the company to maintain long term success.


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Current Valuation and Recent Trading Activity

HE has a price to earnings value of 17.84x and a price to book value of 1.50x with earnings per share of $1.38. HE closed Thursday at $24.64, $3.66 shy of its 52-week high and $0.99 higher than its 52-week low.

Earnings

For Q2, HE reported earnings per share of $0.41. This was $0.03 higher than estimates and one cent higher than the same period last year. HE's one year and five year earnings growth rates remain between 4% and 6%.

Dividend

HE currently pays a $0.31 quarterly dividend (yielding just over 5%). The company has a strong dividend history and the dividend should be considered safe, but don't expect it to grow as it has remained constant since 1998.

Company Outlook

HE is what I consider the very definition of a safe stock. I can't imagine why the stock would ever see huge decreases in its price. The company offers a safe and consistent high yielding dividend and has diversity through its financials services which also helps somewhat to protect the company as a whole from higher interest rates. As HE increases its utility diversity through renewable resources, I think the company is nearly a lock to continue rewarding long term shareholders with positive gains.

Stock #3

Southern Company (NYSE:SO) is a public utility holding company of primarily electric utilities in the southern United States. It is headquartered in Atlanta, Georgia and was founded in 1945.

Financials

Profit Margin Quarterly 7.37%
Return on Assets 2.88%
Return on Equity 9.74%
Return on Invested Capital 4.33%
Debt to Equity Ratio 1.31
Revenue TTM 16.90B
Revenue Per Share Quarterly 4.83
Revenue Quarterly Year Over Year Growth 1.55%

SO has a strong history of long term increases in both revenue and profit.


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I don't see any reason why this pattern will change as SO has shown increases in revenue and profit for both Q1 an Q2 over the same period last year.

Current Valuation and Recent Trading Activity

SO has a price to earnings value of 20.61x and a price to book value of 1.98x with earnings per share of $1.98. SO closed Thursday at $40.76, $7.98 shy of its 52-week high and $0.13 higher than its 52-week low.

IMO, recent price drops have created a nice buying opportunity for long term investors.


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Earnings

For Q2, SO reported earnings per share of $0.66. This was 3 cents shy of the same period last year, but keeps SO's earnings growth for this year positive.

SO's earnings have been a bit erratic over the course of its history, but they also have been positive during that time with substantial long term increases.


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Dividend

SO currently pays a $0.5075 quarterly dividend (yielding just under 5%). Just like HE, SO has a strong dividend history. The main difference is that SO has recently grown its dividend much more than HE or ED.


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Company Outlook

Just like with the other utilities, rising interest rates could present short term problems for companies like SO, but the overall strength of the company remains intact as it maintains a solid infrastructure, a multi-state customer base, and diversity through its telecommunication solutions. At its current price, I consider SO a solid buy for long term investors.

Conclusion

Utilities may be considered boring stocks to some investors, but that doesn't mean they don't have a place in every investor's portfolio. Whether you are talking about electricity, gas, or water, these are products that everyone needs and buys no matter what the current economic condition is. Because of this, utility stocks are a great way to add safety to your portfolio.

I feel that the three stocks outlined above are well run companies that will return solid growth to investors over the long run. Being a dividend growth investor, I like SO the best, but feel that all three companies will add significant long term returns to investor portfolios over the years. As always, I suggest individual investors perform their own research before making any investment decisions.

Source: Spark Long Term Returns With These Electric Stocks