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Foreign Utilities Pay Better

Posted: Aug 20, 2009 14:27 PM by Aryeh Katz

Tickers in this Article: CIG, TEF, NGG

Utilities stocks are known for their yields, but most investors feel constrained to purchase domestic companies' shares. This puts them at a potential disadvantage. There are currently several large foreign utilities with massive cash flows that offer outsized dividends to shareholders. We highlight three of them below.

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National Grid PLC (NYSE:NGG) is headquartered in London, England, where it operates the electricity and natural gas transmission systems for all of Great Britain. The company owns all the electric power transmission lines in England and Wales. In the United States, National Grid distributes electricity to five million customers across New England, thereby hedging its earnings against potential U.K. pound devaluations.

England

Old and New
National Grid shares currently yields 7.3% annually and trade with a one year trailing earnings multiple of 15.5x. The shares are up 25% since lows struck on March 30 of this year. The market cap on the company is just over $23 billion, making National Grid the second largest utility in America. The stock's recent strength is attributable in part to management's commitment to increase dividends annually through 2012.

Brazilian Wind
Companhia Energetica Minas Gerais (NYSE:CIG) is a multi-utility operator in Brazil and

Chile

, predominantly in the electricity and natural gas distribution businesses, with smaller telecommunications and consulting operations. The company's dividend is a very respectable 4.5% annually, but it's the price appreciation in the shares that's most remarkable. CIG has nearly doubled its market cap, rising from its 52-week low of $7.45 to its current $14.73. The company's value now stands (in market terms) at $9.1 billion.

CIG is currently seeking to expand its business base by diversifying into alternative energy, recently acquiring large stakes in three wind farms in northeast Brazil for roughly $100 million. Prior to the deal, the company acquired large stakes in three privately held wind companies in a nearby state.

Spanish Cable
Telefonica S.A. (NYSE:TEF) is Spain's telecom and media behemoth with operations stretching across Europe and Latin America. In Latin America alone, the company has 158 million customers. Since October of last year, the shares have tacked on over 40% in value, yet they still yield a lofty 5.7% annually. Telfonica's market cap currently stands at a gigantic $112 billion.

The company pleased shareholders earlier this year when they concluded a one year, 150 million share buyback program, and, in the middle of the market swoon at the beginning of 2009, pledged to raise their common stock dividend by 15%.

The Wrap
These three foreign domiciled utilities offer great yields to investors in search of income. Going abroad will often turn up worthwhile opportunities for those who desire cash flow from well-established businesses. (For more, see Dividend Facts You May Not Know.)

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By Aryeh Katz

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