Seeking Yield? Don’t Forget Electricity Providers

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The most stable equities and some of those offering the highest dividend yield seem to be electricity generators. That said, the stocks have sold off somewhat of late, probably because investors are taking on more risk and leaving these holdings behind.

The selloff creates an opportunity for conservative market participants to gain some capital along with steadily increasing payouts. Here are just a few of the group in detail.

TransAlta Corp. (NYSE: TAC)

Shares of the Canadian firm sunk substantially in 2012 and yield a hefty 7.5%.

TransAlta is divided into three segments. The Generation Group constructs, maintains and operates facilities. Its Energy Trading group’s primary focus is the wholesale trading of electricity and other energy-related commodities and derivatives. Finally, the Corporate group delivers a range of services that support the other two businesses.

Situated in the Pacific Northwest (U.S. and Canada) and western U.S., TAC is currently facing pressure from a slow Canadian economy. Plus, the bottom line suffered last year from an arbitration charge related to facility shutdowns several years ago, as well as an inventory writedown. Late October, it announced a corporate realignment strategy involving cost cutting measures, and earnings should now begin to bounce back.

Hawaiian Electric Industries (NYSE: HE)

The state’s tourism revenues are rising rapidly behind increased visitation and higher hotel occupancies. Plus, Hawaii’s unemployment rate is improving and is significantly below the national average. However, deterring top- and bottom-line gains has been the transition to renewable energy sources and rollout of energy-efficient products. HE has stated its commitment to help meet the state government’s goal of 40% renewable energy by 2030 and also plans to expand its presence in natural gas.

For now, the company is projecting slightly lower energy revenue in 2013 and flat energy revenue through 2022 on an annual basis, though. Incidentally, the company also operates a small bank, contributing about 8% of revenues with strong operating margins.

The yield is about 4.8% on HE shares, substantially above that of 10-year treasury bonds in the current low-rate environment. Hawaiian Electric provides electricity to 95% of the state and ought to be at the forefront of industry trends and developments. Thus, there may be some upside at this time.

Consolidated Edison (NYSE: ED)

New York City’s primary service provider sets rates designed to cover increased operating and capital spending requirements. Factoring in also the receipt of product and delivery revenues, the company should continue to fare well. Accordingly, the shares, down markedly from their 52-week high, are likely to rebound. Their yield of around 4.3% is attractive, even for a utility. In all, the lure of price consistency and an appealing, well-covered yield should support this.

Summary

All of the dividends mentioned in this report are sustainable, and the utilities’ operating risks are typically few. Now may be the time to seize the opportunity to bring some stocks from the high-yielding electricity distribution industry into an income portfolio.


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