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Glamourless Dividends with Regional Utilities

Posted: Aug 13, 2009 10:21 AM by Aryeh Katz

Tickers in this Article: UTL, AEE, DTE

Since March of this year, the Dow Jones Utilities Average (DJUA) has had a slow and steady advance of nearly 28%. That's in keeping with its general trading pattern; the utilities are not an impulsive trading group. They move in a much more sober manner than, for example, either of their brother averages, the Dow Industrials or Transports. And that's generally because they have much higher dividends. A quick comparison reveals that the utilities trade with a 4.55% yield while the Industrials and Transports come in at 2.85 % and 2.05 % respectively. (Learn more in Why The Dow Matters.)

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That same dividend yield acts as a cushion on the downside when times are tough, and as a slight brake on growth during more prosperous periods, as a greater allocation of profits are steered from operations toward shareholders. Below are three bright lights in the utilities sector with great yields and otherwise equally impressive fundamentals.

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Ice Storms and Acquisitions
Unitil Corporation (NYSE:UTL) distributes electricity and natural gas to customers in Massachusetts and New Hampshire. The company pays a hefty 6.60% annual distribution and has a trailing P/E multiple of around 11. Price-to-sales is 0.62 and price-to-book is 1.15.
A great number of Unitil customers were left out in the cold this winter when an ice storm downed a large number of the company's power lines and response times were acknowledged to be inadequate. Since then, the company has dropped rates twice in response to cheaper oil costs, a move that many expect will appease angry subscribers.

Unitil recently closed a deal to purchase Northern Utilities and Granite State Gas

Motown Energy
DTE Energy Company (NYSE:DTE) pays investors 6.2% annually and trades with a P/E of about 10. The stock is up nearly a third since hitting lows in March of this year, besting the DJUA by 5%.

DTE delivers electricity and natural gas to customers in the State of Michigan via two separate business units, Detroit Edison and MichCon, respectively, and between them, they bill nearly 3.5 million customers. The stock trades with a P/B of 0.92 and a price/sales ratio of 0.67.(Learn how to evaluate the quality of these numbers and more in our Financial Raitos Tutorial.)

A Mad Missouri Scramble for Cash
Ameren Corporation (NYSE:AEE) recently cut staff, announced $2 billion in capital spending costs, requested federal stimulus money to help upgrade systems and announced an 18% rate hike to customers in Missouri. Yet the company's fundamentals look sound. The dividend yield is 5.83%, the P/E is 9.79, price-to-book is 0.79 and price-to-sales is 0.75. Ameren services supplies electricity and natural gas to its regional client base in Missouri and Illinois.

The Wrap
These three regional utilities offer investors very strong fundamentals and a dividend yield that's far richer than treasuries. For those who prefer the slow and steady course to investment wealth, there are few less glamorous stocks - nor surer bets - than those found amongst the utilities.

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By Aryeh Katz

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