Utility stocks are important in any portfolio, but mostly for people who are debt averse and don't want to own bonds in the current marketplace, because you have to go out 10 years to get 2%. As we all know the world isn't running without power and I have identified some quietly successful names that I think are crucial to own if you are looking for income and the possibility of capital gains. Some of these have had a rough 6 months or so, which is an added benefit to my "value" investing.
Hawaiian Electric (NYSE:HE)--engages in the production, purchase, transmission, distribution and sale of electricity from renewable energy sources, such as wind, solar, photovoltaic, geotherman, wave, hydroelectric, sugarcane waste and other biofuels. They distribute and sell electricity on the islands of Oahu, Hawaii, Maui, Lanai and Molokai, as well as U.S. armed forces installations. They also engage in some banking business through American Savings Bank F.S.B. Hawaiian has been around since 1891, and really has no competition. It is trading near its 52 week high, up nearly 13.5%. The dividend is just shy of 5% which makes the performance extrememly attractive. It also reported strong earnings this week as well. (See earnings call transcript.)
Empire District Electric (NYSE:EDE)--engages in the generation, purchase, transmission, distribution and sale of electricity in Missouri, Kansas, Oklahoma, and Arkansas. They generate electricity from steam, hydro, coal and natural gas with fuel oil and tire derived fuel (TDF). They service residential, commercial, industrial, wholesale on-system, and wholesale off-system transactions customers, and well as for public authorities. EDE also owns and operates water pumping facilities and distribution syatems, provides natural gas distribution to customers as well as leasing fiber optics cable and equipment. Company has been around since 1909, and is currently dealing with the aftermath of significant damage from the May 22, 2011 EF-5 tornado that has caused nearly 4,000 customers to remain without power. They have suspended the dividend until 1st quarter 2012 when they expect to pay $.25 per share (5% annual based on current share price). It's a temporary setback; the loss provisions of $20-$30 million have already been capitalized. Value play.
Empresa Nacional de Electricidad S.A (NYSE:EOC)--engages in the generation, transmission, production and distribution of electricity. They own and operate hydroelectric facilities, thermal facilities comprising natural gas, LNG, coal or oil fired units, as well as wind power. EOC controls 28 generation facilities in Chile and 26 generation facilities in Argentina, Columbia, and Peru. What I like about this company is that it also offers engineering consulting services, such as civil, mechanical and electrical engineering, metallurgy, architecture and environmental services. It has been around since 1943, and is currently trading 16% lower in the past 52 weeks, while boasting a 5.6% dividend. $13b market cap makes this a real player in South America.
Huaneng Power International (NYSE:HNP)--an independent power producer, engages in the generation and sale of electric power to the regional or provincial grid companies in the People's Republic of China. It's involved in the investment, construction, operation, and management of power plants in China and Singapore. It has a market capitalization of $6.3 billion, generates revenues in the amount of $18.8 billion and a net income of $400.6 million. The stock is down 20% in the past 52 weeks, so here again is a value play, and while you wait, enjoy the 6.1% dividend. HNP has been around since 1994, and most recently announced that the project of two 600MW domestic supercritical coal fired air-cooling generation units was approved by the Natl. Dev and Reform Commission.
Utilities have had a rough road, but are very important. Dividend plays are one thing, and more often than not, people get roped up into the yield and not the nuts and bolts of the company. Yield hogs, as they are typically called, have the attitude, "well if you liked the yield at 5 you gotta love it at 7". That may be the worst market mentality. Stocks go down, yields go up for a reason. It could be bad fundamentals, short term crisis etc. Buy good utility stocks with middle of the road dividends, and you will be well rewarded...
As always, hit me up with any questions you may have; I write for you.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.