Utilities generally offer high dividends and are less risky. Utilities stocks are often considered 'widow and orphan stocks'. However, in the current low yield environment, these stocks have become more attractive for investors. We will analyze four utilities offering high yields; Exelon Corp (NYSE:EXC), which offers a yield of 5.9%, Unitil Corp. (NYSE:UTL), which offers 5.1%, Pepco Holdings (NYSE:POM) offering 5.7% and CPFL Energia S.A. (NYSE:CPL) with a 7.3% yield.
Exelon Corp. is involved in energy generation and distribution in the United States. During the last couple of years, the company has been involved in acquisitions and mergers. Earlier this year, it merged with Constellation Energy. Last year, it acquired Wolf Hollow, which has a generation plant in northern Texas. The company has registered revenues of $5.95 billion and EPS of $0.61 in 2Q 2012. EXC experienced a rate reduction of $169 million, brought about by the Illinois Commerce Commission (ICC). The company is expected to earn operating EPS of $0.65-$0.75 for 3Q2012 and $2.55-$2.85 for fiscal year 2012.
The recent merger will help the company diversify in the region, improve on its operations and enjoy higher margins. It is also expected to benefit from synergies; O&M synergies are expected to be $500 million, while CAPEX synergies of $75 million are expected by 2014.
Exelon offers a high dividend yield of 5.9%. Over the last five years, it has maintained a dividend of ~$2.1 per annum. It has an operating free cash flow yield of more than 20%, which indicates that going forward, it will maintain its dividends. The company has a debt-to-equity ratio of 87% and a strong interest coverage ratio of 6.3x.
Unitil's primary business is the local distribution of natural gas and electricity. It also provides advisory services to large industrial and commercial customers in the United States. The company's registered results for Q2 2012 were below consensus expectations. Revenues for the quarter were $68.8 million, down 1% year over year (YOY). Electric services contributed 65% and gas contributed nearly 33% to total revenues in the recent second quarter. It reported a loss per share of 0.03 cents, as compared to a loss of 0.07cents in Q2 2011. Even though the results missed expectations, profitability improved on a YOY basis. The company is expected to earn $1.49 per share for fiscal year 2012.
The company has maintained a constant annualized dividend of $1.38 per share over the last five years. Currently, it has a healthy dividend yield of 5%. The company has an operating free cash flow yield of 13.8%, which is enough to sustain dividends in future. It has a debt-to-equity ratio of 114% and an interest coverage ratio of 2x, which is slightly on the weaker side.
Pepco Holdings Inc
Pepco is one of the largest energy delivery companies in the mid-Atlantic region. It provides electricity and natural gas services. In the last fiscal year, 90% of its consolidated income was from regulated operations. This proportion is expected to continue in the future as well. Pepco mainly owns transmission and distribution assets. The company reported total revenues of $1.18 billion in Q2 2012, as compared to $1.41 billion in the second quarter of last year. Adjusted EPS for the quarter were $0.27, down by more than 30% YOY. The decrease in earnings was mainly because of favorable tax benefits in 2011.
Over the last five years, the company has maintained a quarterly dividend of 0.27 cents. It has an attractive dividend yield of 5.7%. The company has a strong operating cash flow yield of 10.9%. It has a debt-to-equity ratio of 125%, and an interest coverage ratio of 1.8x.
CPFL Energia S.A.
CPL, through its subsidiaries, generates and distributes electricity in Brazil. The company has a market cap of $10.75 billion. CPL became a publicly-traded company in 2004. In the last five years, it was able to increase its revenues by an average of more than 9%, while earnings per share grew by an average of 4%.
The company pays dividends semiannually. Over the years, the company has offered a high dividend yield, which has mostly been in the range of 6% to 9%. Currently, it yields 7.3%. The company currently has an operating cash flow yield of 10%. The company has a high debt-to-equity ratio of 180%, which will make it difficult for the company to obtain debt financing in case it runs short of cash.
Debt to Equity
Source: Yahoo Finance
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by Qineqt's Utilities Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.