In this article, I want to highlight 3 quality utility companies to invest in. One is a micro cap utility , one is a mid cap utility, and the other is a major utility complex within the U.S. All three represent required services for utility customers. The safe and reliable dividend yields range between 4.3% to 5% annually.
Gas Natural (EGAS) is a holding company with wholly-owned subsidiaries focused primarily on natural gas supply, distribution, and marketing to 63,500 customers in Montana, Wyoming, Maine, North Carolina, Ohio and Pennsylvania. Gas Natural also operates an interstate gas pipeline in Montana and Wyoming, and delivers heating oil, kerosene and liquid propane to 4,500 customers in North Carolina and Virginia.
Gas Natural derives 92.6% of its revenue from natural gas distribution, 6% from natural gas marketing and production, 1% from propane operations and 0.4% from its pipeline and other operations.
Gas Natural started operations through its subsidiary Energy West, Inc. in Montana in 1909, expanded to Wyoming in 1926, then grew organically and through acquisitions. In 2010, Gas Natural acquired Brainard Gas Corp., Great Plains Land Development, Ltd., Northeast Ohio Natural Gas Corp. and Orwell Natural Gas Company. In August 2011, it acquired Independence Oil & LP Gas, Inc. for its heating oil, kerosene and liquid propane delivery in North Carolina and Virginia. Going forward, the company plans to shore up its existing operations through cost controls and improved efficiency, and pursue complementary acquisitions in Montana and Wyoming, and in areas that are under served by natural gas.
For its fiscal year ended December 31, 2010, Gas Natural reported operating revenue of $91.5 million that was 28% higher than fiscal 2009, operating income of $11.1 million that was 22.2% higher and net income of $5.8 million that was 15 % lower than fiscal 2009, likely impacted by acquisitions completed January 2010.
More recently, for its nine months ended September 30, 2011, Gas Natural reported operating revenue of $71.1 million, operating income of 7.6 million, net income of $4.8 million and $12.5 million in cash from operations. It also reported cash of 10.5 million, total assets of $144.6 million, long-term notes payable of $31.3 million and stockholders' equity of $106.6 million.
Over the past two years, Gas Natural has consistently paid a monthly dividend of 4.5 cents, or 54 cents annually, with a 4.8% annual dividend yield with shares at $11.28 as of March 18th, 2012.
Gas Naturals shares have performed modestly, gaining 6.2% annually over the past five years. As of March 18th, shares traded near the top of a fairly tight 52-week range of $10.4 to $11.99, with a market capitalization of $92.5 million (0.9x Book Value) and a P/E ratio of 13.9x.
Gas Natural is small compared to many of other billion-dollar market cap gas utilities. Its peers include MDU Resources Group, Gas Natural sports a lower P/E ratio than many of the above mentioned companies.
Gas Natural offers a 4.5 cents per month dividend. This equates to a a 4.8% annual dividend. These shares should be purchased due to the company's business model and size. The size allows the company to pursue deals other entities can not place within their business model. Size does matter.
Gas Natural trades at less than book value, pays out a steady dividend but with a yield that's only slightly over inflation, and has manageable debt. The company operates in low population density states but has been growing through acquisitions. Gas Natural could be a takeover candidate down the road, giving investors equity upside along with a reasonable dividend. At current valuations, investor downside should also be limited, making this a relatively safe and stable investment.
MDU Resources Group (MDU)
MDU Resources Group natural resource company. The company generates, transmits, and distributes electricity to over 800,000 residential, commercial, and industrial customers. MDU Resources Group owns and operates approximately 3,700 miles of transmission, gathering, and storage lines. This is similar to a mid stream master limited partnership. The utility company owns eases, and operates 33 compressor stations in Montana, North Dakota, South Dakota, and Wyoming.
I recommend investors buy MDU Resources Group with a 3% dividend yield. The market has not fully digested the non regulated assets within the MDU Resources Group balance sheet. There is plenty of growth and opportunities that management is just starting to explain to shareholders.
Let's think 3 strips ahead of the page one news on the major financial periodicals. MDU Resources Group owns an extensive and wide encompassing group of petro assets. The yield will continue to grow and enrich shareholders.
Southern Company (SO)
The year 2012 marks the centennial of Southern Company. One hundred years ago, Alabama Traction Light & Power was the first holding company in the long line of holdings that eventually turned out to be the Southern Company of today. Southern Company was founded in 1945 under Georgia law, and is authorized to operate as a foreign corporation in Alabama law.
Southern Company Background Affiliations and Background
All outstanding common stock of each of the following public utility companies are completely owned by Southern Company. These public utility companies are the following: Alabama Power, Gulf Power, Georgia Power and Mississippi Power. Among the four public utility companies, all operate in the state of Alabama, Georgia Power, Gulf Power and Mississippi Power in the state of Georgia, Gulf Power and Mississippi Power also operate in the state of Mississippi, and Gulf Power alone operates in Florida.
In addition, Southern Company also holds all the common stock of Southern Power, which operates in the states of Alabama, Georgia, Florida, Mississippi, North Carolina, South Carolina, Texas and New Mexico.
Southern Company owns all the common shares of Southern LINC Wireless, Southern Holdings, SCS and Southern Nuclear. Southern LINC Wireless is a telecom that provides optical and digital wireless communications between Southern Company and all its direct and indirect subsidiaries, as well as to other corporate entities and the general public. Southern Holdings exists as a the step between Southern Company and Southern Company's investments in leveraged leases. SCS operates internally through specialized services to Southern Company's subsidiaries at cost. Southern Nuclear services the nuclear plants of both Alabama Power and Georgia Power, with a new nuclear generation facility underway in Plant Vogtle, co-owned with Georgia Power.
Next in line, both Alabama Power and Georgia Power share complete ownership of all the shares of SEGCO. SEGCO is required to provide all of its capacity in generating electricity to both Alabama Power and Georgia Power - Alabama Power also supplies SEGCO with the coal necessary to produce the power.
In the News - Plant Vogtle 3 and 4
The Nuclear Regulatory Commission has approved for the first time since the Three Mile Island incident in 1979, the construction of Plant Vogtle 3 and 4, which will become the next two nuclear plants under Southern Company's belt. The plants will be fully operational on 2016 for Plant Vogtle 3 and 2017 for Plant Vogtle 4.
Southern Company also stretches its interests in other sources of energy. It has invested in solar power, the Carbon Disclosure Project is a noteworthy goal, and adding more nuclear power to its energy supply is along the lines of the current administration's blueprint for the American economy, implying more than support for Southern Company's goals.
Dividends and Growth
In a continuing tradition of profit, Southern Company announced for the quarter ending December 31, 2011, a regular quarterly dividend of 0.4725 cents per share. This represents the 257th consecutive quarter since 1948, that Southern Company has paid quarterly dividends to its shareholders.
Here's the brass tacks as I see it. Almost every utility recommendation owns Southern Company. It's one name and should be equally weighted. The stock isn't outperforming any index. Utilities go down when interest rates are rising, which they are right here, right now.
In the short term, expect Southern Company to experience a decrease in price as fear mongers believer interest rates are increasing and making utility companies less attractive for investment.
The worldwide economy is struggling. Utilities are investments which are required entities for day to day operations. Follow the money versus the main stream press. Everyone is talking their book, versus talking honestly to the "investing community". The Federal Reserve wants nothing more than interest rates to remain low to increase the housing market. Mssr. Bernanke has the tools to lower interest rates. Keep your focus upon the money versus 1984 public policy speak. This is the key to avoid confusion and focused upon "what's real" and "what's talk". These are, of course, only my views.