6 Utilities Dividend Stocks With Strong Sources Of Profitability

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 |  Includes: EE, ITC, NEE, NFG, PEG, WEC
by: Kapitall

A company’s profitability can come from more than one source, and some are preferred over others. This is why an analysis beyond the top and bottom-line numbers is important when choosing stocks.

One way to analyze sources of profitability is with DuPont analysis of return on equity (ROE) profitability.

ROE can be broken up into three components such that increases in ROE can be attributed to those components.

ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Analyzing the sources of returns for a company, we can focus on companies with the following characteristics: Increasing ROE along with,

  • Decreasing leverage, i.e. decreasing Asset/Equity ratio
  • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.

To illustrate this analysis, we ran DuPont on dividend stocks from the utilities sector.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 (NYSEARCA:SPY) index over the last month.

(Click chart for more detail)

Do you think these stocks pay reliable dividends? Use this list as a starting-off point for your own analysis.

List sorted by dividend yield.


1. NextEra Energy, Inc. (NYSE:NEE):
Engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. Market cap of $23.10B. Dividend yield at 4.02%, payout ratio at 48.28%. MRQ Net Profit Margin increased to 14.64% from 11.61% year-over-year, Sales/Assets increased to 0.0726 from 0.0701, while Assets/Equity decreased to 3.66 from 3.79. The stock has gained 4.5% over the last year.

2. Public Service Enterprise Group Inc. (NYSE:PEG): Operates in the energy industry primarily in the northeastern and mid Atlantic United States. Market cap of $17.38B. Dividend yield at 3.99%, payout ratio at 42.80%. MRQ Net Profit Margin increased to 13.08% from 9.49% year-over-year, Sales/Assets increased to 0.09 from 0.08, while Assets/Equity decreased to 2.85 from 3.15. The stock has had a couple of great days, gaining 5.14% over the last week.

3. Wisconsin Energy Corp. (NYSE:WEC): Engages in the generation, distribution, and sale of electric energy and steam. Market cap of $7.39B. Dividend yield at 3.29%, payout ratio at 42.43%. MRQ Net Profit Margin increased to 11.04% from 9.96% year-over-year, Sales/Assets increased to 0.08 from 0.07, while Assets/Equity decreased to 3.29 from 3.42. The stock has gained 12.48% over the last year.

4. El Paso Electric Co. (NYSE:EE): Engages in the generation, transmission, and distribution of electricity primarily in west Texas and southern New Mexico. Market cap of $1.34B. Dividend yield at 2.74%, payout ratio at 9.62%. MRQ Net Profit Margin increased to 13.60% from 10.18% year-over-year, Sales/Assets increased to 0.10 from 0.09, while Assets/Equity decreased to 2.89 from 3.04. The stock is a short squeeze candidate, with a short float at 6.84% (equivalent to 6.11 days of average volume). The stock has gained 38.71% over the last year.

5. National Fuel Gas Co. (NYSE:NFG): Operates as a diversified energy company primarily in the United States. Market cap of $4.81B. Dividend yield at 2.44%, payout ratio at 45.20%. MRQ Net Profit Margin increased to 12.31% from 12.10% year-over-year, Sales/Assets increased to 0.0742 from 0.0711, while Assets/Equity decreased to 2.77 from 2.84. The stock has gained 28.77% over the last year.

6. ITC Holdings Corp. (NYSE:ITC): Engages in the transmission of electricity in the United States. Market cap of $3.93B. Dividend yield at 1.84%, payout ratio at 43.31%. MRQ Net Profit Margin increased to 23.23% from 21.55% year-over-year, Sales/Assets increased to 0.0407 from 0.0403, while Assets/Equity decreased to 3.82 from 3.96. The stock is a short squeeze candidate, with a short float at 5.21% (equivalent to 8.64 days of average volume). The stock has gained 29.5% over the last year.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.