Hawaiian Electric Industries: A Diversified Island State Play

| About: Hawaiian Electric (HE)

Hawaiian Electric Industries (NYSE:HE) offers investors an opportunity to own shares of a large utility company and a regional bank all with one stock. The company operates on the island state of Hawaii and has been in business for over 100 years. The company was founded in 1891, over fifty years before the state became an official member of the United States.

Hawaiian Electric supplies power to the majority of Hawaiian residents. Currently, 95% of the island residents count on the large utility company to supply power for their everyday lives. The island of Kauai is the only major island of Hawaii to not count on the utility company for electric, as it is powered by Kauai Island Utility Cooperative. Utility net income was $25.8 million for fiscal 2011. This was an increase from $18.9 million in 2010. The utility segment makes up the largest portion of the company's revenue and net income.

American Savings Bank, which began in 1925, is the regional banking operation of Hawaiian Electric. The segment has grown through acquiring banks in the island. The bank competes with the Bank of Hawaii (NYSE:BOH) and Central Pacific Bank (NYSE:CPF) and is one of the top five banks in the state in terms of assets. Deposits for the banking segment increased by over $95 million during fiscal 2011.

Earnings for the most recent year were announced recently. For fiscal 2011, the company earned $1.44 per share, which was an increase of 19% from the previous year ($1.22).

The company pays out $0.31 in dividends each quarter. This amount has not been raised since 1998. Hawaiian Electric has paid out a dividend for 110 years. One negative to note was the last conference call when the company talked about possibly lowering the dividend payout.

Hawaiian Electric has $270 million in cash while also carrying $1.6 billion in long term debt. The debt is manageable but the company is paying out the majority of its earnings in the form of dividends.

The current trend for the island state of Hawaii is positive as it gains back tourists. Twenty straight months have seen increases in visitor expenditures, according to Hawaiian Electric's latest earnings call. December represented the largest one month total on record for visitor expenditures.

Robert Baird recently downgraded shares from Outperform to Neutral on January 13th, 2012. The company had previously listed the shares at outperform on January 4th, 2011. Shares are a large holding for institutions. Vanguard owns 5% of shares, while the Bank of New York Mellon also owns close to 3% of Hawaiian Electric shares.

Analysts expect the company to earn $1.62 per share in 2012, which would represent an increase of 12.5%. The following year, analysts see Hawaiian Electric earning $1.74. The company has continued to increase revenue through its two segments and has been a great returner to shareholders since it went public in the 1980s.

Analysts have been shying away from large "too big to fail banks" and recommending regional banks. Hawaiian Electric offers an opportunity to invest in a regional bank, a growing utility, and collect a nice dividend. These three items make Hawaiian Electric a winning play.

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

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