A great many people have profited from investing in electric utilities. These companies are traditionally very stable and many offer both growth opportunities and dividends, making them excellent long-term holdings. In this article I will take a look at five promising utilities: American Electric Power (AEP), Consolidated Edison Inc (ED), FirstEnergy Corporation (FE), PP&L Corporation (PPL) and The Southern Company (SO).
American Electric Power
Operating throughout the Midwest, American Electric Power has an $11.8 billion capitalization, and it provides investors with both share price increases and dividends. Currently trading at $39 per share, the stock has increased nearly 10% over the past year. Sitting near the top of its 52-week range of $33.09 - $41.98, the stock has a one-year target of $42.25, and the company pays a dividend of $1.88, which creates an impressive 4.7% yield.
Although its share price is down so far in 2012, I am still very high on American Electric Power. The company recorded a 10.2% gain in quarterly earnings in 2011, and its price to earnings ratio is a reasonable 11.8. The company experiences very low volatility (seen by its 0.35 beta) and its price to book ratio of 0.81 suggests that the share price could be somewhat undervalued and its debt to equity ratio of 123% shows that it can make a profit without piling up the debt. With solid gains and big dividends, this is a classic example of the kind of mixed stock that stabilizes a portfolio. I would rate American Electric as a buy.
Consolidated Edison Inc
Supplying electric, gas and steam power primarily to the Northeast, Consolidated Edison is one mixed growth and dividend stock that concerns me. While the utility sector as a whole as gotten off to a slow start in 2012, Edison's share price projections don't seem to indicate a turnaround this year. At $59 per share, the stock is trading near the high of its 52-week range of $48.55 - $62.74, and its one-year target of $57.87 represents a 2% drop. In addition, its price to book ratio of 1.57 suggests that it is becoming overvalued. Even though the stock has traded above its 200-day moving average for the past year, the anticipated decline seems to suggest its gains are slowing down.
While its share price may be struggling, Consolidated Edison is still making money for investors, thanks to its dividend. The company raised its yield from 4% to 4.1% during the past quarter, meaning that its $2.42 dividend would more than cover any anticipated losses in share price. Edison does have a solid earnings per share of 3.57 and a nice price to earnings ratio of 16.5, but this is a sector where some companies offer both growth and dividend. I am rating the company neutral at the present.
FirstEnergy Corp is a diversified energy company, operating primarily in Ohio, Pennsylvania, New Jersey, West Virginia and Maryland. With a market cap of nearly $18 billion, the company's shares are currently trading near $42.25, while eying a one-year target of almost $46 each. FirstEnergy has a 52-week range of $36.11 - $46.51, and the company pays a dividend of $2.20, for an impressive yield of 5.1%.
A strong 2011 has the company primed for another good year in 2012. A 27% increase in quarterly revenue translated into an incredible 185.5% climb in earnings. The company plans to close a total of three coal-fire plants in West Virginia in 2012. This move does not cause concern of additional capital expense, since the three produced less than 1% of the company's total. This stock experiences low volatility (beta of 0.40). It is efficient (debt to equity of 135%) and its price to book ratio suggest that shares are reasonably priced. Rising share price and a fat dividend make a great combination; I have FirstEnergy as a buy.
PP&L Corp is an energy and utility holding company that provides electricity and natural gas service to around 2.7 million customers in Pennsylvania, Kentucky, Virginia, Tennessee and overseas in the United Kingdom. The company has a capitalization of $16.5 billion, and its stock is trading around $28.50 per share, near the upper limit of its 52-week range of $24.10 - $30.27. Its share price is expected to rise (a one-year target of $30) and the company pays out a $1.40 dividend, which equates to a 5% yield.
We can expect to see PP&L's stocks react to a solid, 13% climb in net income in the 4th quarter of 2011. This gain powered the company's earnings per share to a very nice $2.64, which looks especially positive when added to its big dividend. With a steadily climbing 200-day moving average and a projected 2012 earnings of $2.45 per share, I am tabbing PP&L Corp as a buy again this year.
The Southern Company
The Southern Company is a large electric utility, providing coal, nuclear, oil and gas, and hydro resources to create power for customers in Alabama, Georgia, Florida, and Mississippi. The company also produces profits for Wall Street investors, combining price growth with very nice dividends. Trading near $45 per share, the company is close to the top of its 52-week range of $35.73 - $46.69. It is also returning a $1.89 dividend, bringing in a yield of 4.2%. The company was also recognized for its performance, winning several awards as one of the best utility companies in the country.
Southern is another of the electric companies that takes advantage of very little volatility to combine growth and dividends. The company's beta is an impressive 0.16, and its low debt to equity ratio of 111 indicates that it is making money efficiently. The company's quarterly earnings grew more than 70% last year, and its stock price climbed about 17.5%. Although its price to book ratio is somewhat hefty at 2.18, its share price has been trending above its 200-day moving average for the past year. This strength suggests that the stock continues to have legs, and adding its dividend into the equation makes the company too good to pass up. I am rating Southern as a buy.
Generating Profits with Electric Utilities
The electricity sector has been a great source of earning power for many investors, and these companies reflect that trend. While I am concerned about Consolidated Edison Inc's projected earnings decline, I think American Electric Power, FirstEnergy Corporation, PP&L Corporation and The Southern Company are all very promising and rate them as buys.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.