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Due to their predictability and juicy payouts and dividend yields, electric utilities are often favorite selections of the buy-and-hold, income-seeking investment crowd. Of course, dividends and their viability hinge on a company's ability to generate profits and that is no different among utilities. The next week will bring clarity on this group's ability to keep dividend seekers as 12 of America's largest deliver third-quarter results.
With so many of the big utilities scheduled to report earnings in the coming days, we decided to take a look at what to expect from several of the companies that help us keep the lights on.
| Company Name |
52-Week Change |
Dividend Yield |
| Consolidated Edison (NYSE:ED) |
4% |
5.7% |
| Dominion Resources (NYSE: D) |
2% |
5% |
| DPL (NYSE: DPL) |
21% |
4.5% |
Counting on ConEd
Consolidated Edison is one of the largest investor-owned utilities in the U.S., but that size hasn't led to noteworthy returns in the past year. The stock is up less than 4% while the S&P 500 is up nearly four times as much in the same period. Then again, capital appreciation isn't the source of attraction with Consolidated Edison's stock - the dividend is.
The shares currently yield a robust 5.7% and pay $2.36 per year. Over the past 10 years, the company has returned an average of 7.3% to shareholders and some analysts argue that the time to buy the stock is when it yields 6%, a level it is pretty close to right now.
Of course, we cannot forget that Consolidated Edison has increased its dividend for 35 straight years, and that's a dividend history worth getting to know better.
Depending On Dominion
Dominion Resources is another stodgy utility. The company operates in Ohio, Pennsylvania, Texas and West Virginia and has over 2.4 million retail customers. The company increased its dividend by 11% in late 2008, and that is an impressive feat when you think about all the companies that were slashing their payouts at that time. In fact, Dominion has been a reliable dividend payer for the last 25 years.
Trading at 10.8-times forward earnings, Dominion is cheap, considering the $1.75 annual pay out and current 5% yield. If you look at Dominion's dividend history for the last 25 years, you will see periods where dividends declined in dollar terms. This is due to stock splits, not because of real cuts made by the company. Dominion is not a dividend cutter.
Dominion is also in the process of seeking approval from the Federal Energy Regulatory Commission (FERC) to transport natural gas produced in West Virginia and Pennsylvania to pipelines and storage fields in Pennsylvania, and that could mean another reliable source of revenue.
A Smaller Utility
Ohio-based DPL is dwarfed in market cap by both Consolidated Edison and Dominion Resources, but that might mean the company is more agile, as well. Either way, it has offered the superior returns of this trio over the past year, and the dividend yield is still decent at 4.5%.
DPL has a three-year revenue growth rate of 6% and a profit growth-rate of 13%, which is very nice indeed. The company has a safe payout ratio of 56% and has boosted its dividend for 12 straight years, signaling this smaller player may have big things in store for income investors.
The Bottom Line: Light Up Your Income Stream
Everyone loves getting free money, and that's exactly what a dividend is. It's also the best reason to invest in the utilities sector. The coming earnings reports will highlight the viability of the dividends mentioned here, but we don't expect much in the way of surprises. With risk appetite still fairly high, capital appreciation will remain hard to come by with this group, but when investors decide to peel back on risk, utilities stock may eventually light up. (To learn more, see Dividend Facts You May Not Know.)
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