Electric utility stocks are great additions to conservative portfolios. They generally have high, stable yields and, because of their industry, are almost recession-proof. After all, no matter how hard times are, people still need electricity. But that doesn't mean all electric utility stocks are good buys. In fact, some are significantly better than others.
Using data from Yahoo Finance, we came up with a list of electric utility stocks with market caps over $1.5 billion and dividend yields over 5%: Atlantic Power (AT), Hawaiian Electric Industries (HE), Pepco Holdings (POM), TransAlta (TAC) and UIL Holdings (UIL). In this article, we are going to take a look at these five stocks and see which is the best deal right now.
Atlantic Power is currently trading at $14 a share. The company is reeling from a major loss in earnings per share, going from 1 cent at the end of 2010 to a loss of 39 cents at the end of 2011. Atlantic Power's net income also declined significantly, falling 2387.6% when compared to the same quarter last year. All this translated into the company's share price underperforming the market. It may seem like a good deal to buy in now while the price is low and the dividend yield is so high, but the company also has a high debt-to-equity ratio of 1.88 and a poor quick ratio of 0.85.
Pepco Holdings is currently trading at $18.53 a share and pays a dividend yield of 5.90%. Its earnings per share has increased dramatically in 2011, moving from 62 cents at the end of 2010 to $1.14 at the end of 2011, in spite of its revenue falling 18.6% compared to the same quarter last year. Pepco Holdings did enjoy a small increase in return on equity, suggesting strength in management, but it certainly isn't the best of the bunch. The company's profit margins are low and the company's stock performance has been fairly flat. Pepco Holdings also has a low quick ratio at 0.56.
TransAlta recently traded at $17 a share with a 6.80% dividend yield. During the last fiscal year, TransAlta was able to increase its earnings per share to $1.30 from 99 cents at the end of 2010, but things are looking a little rough for this company. Its net income fell by 55.5% compared to the same quarter last year and its profit margins aren't much better. The company has a high gross profit margin of 57.50%, but it is on a declining trend. Combine this with a net profit margin of just 4% and the outlook is somewhat dismal. TransAlta also has a low quick ratio of 0.54. That said, several hedge funds were bullish about the company in the fourth quarter. Renaissance Technologies, Millennium Management and Magnetar Capital each initiated new positions in TransAlta during the fourth quarter 2011.
UIL Holdings is currently trading at $33.78 with a 5.20% dividend yield, and it is in a strong financial position. Its revenue increased by almost 12% compared to the same quarter last year and it was able to raise its earnings per share even more significantly, going from $1.64 at the end of 2010 to $1.95 at the end of 2011. More impressively, UIL Holdings was able to increase its net income by 103.2% over the same quarter last year. Its very low quick ratio of just 0.35 is a bit worrying, especially since its liquidity declined over the same quarter last year.
Hawaiian Electric is in a much better position. It recently traded at $25 a share and pays a dividend yield of 5.0%. The company's revenues outpaced its industry's, coming in at 22.3% vs. its industry's average of 7.0%. The boost seems to have trickled down, improving its earnings per share by 38.5% compared to the same quarter last year and, in turn, elevating its fiscal year earnings per share from $1.21 at the end of 2010 to $1.44 at the end of 2011. Hawaiian Electric's net income also increased, moving up almost 38% compared to the same quarter last year. The company's debt is a little high -- it has a debt-to-equity ratio of 1.05 -- but that figure is acceptable compared to its peers. Jim Simons' Renaissance Technologies, Israel Englander's Millennium Management, and David E. Shaw's D.E. Shaw each held significant positions in Hawaiian Electric at the end of the fourth quarter 2011. We like this stock and recommend it as a buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.