4 Stocks that will Pad Your Portfolio

Brendan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Utility companies are here to stay.

The services these companies provide are always in demand, even if other industries are hurting. Furthermore, utility stocks tend to offer above-market dividends and less risk when the market is volatile. So, why not consider positioning yourself to allow the following four utility companies to provide more security and size to your investments?

It is nearly a foolproof plan.

#1

Consider Southern Company (NYSE: SO). With a market cap of $38.85 billion and 4.4 million customers, Southern is one of the largest utility companies in America. Last week, Southern announced its 261st consecutive quarterly dividend at $0.49 a share as of record Feb. 4, 2014, payable in March. You can still jump on board!

In addition to providing consistent—and high—dividend yields, analysts are projecting 5% annual growth for the next 5 years. Also, revenue for the last quarter is expected to be 23.9% higher than the same quarter last year.

Southern boasts an impressive ROE of over 12%. Coupled with its cash position seen in the below graph, an A credit rating from Standard and Poor’s, the natural monopoly of the utility industry (excluding de-regulated states), and the competitive advantage Southern owns due to its location, I think that this stock is a smashing hit. Watch for the earnings report release on Jan. 30 and expect great growth in years to come.

SO Cash and Equivalents data by YCharts

#2

Second, I recommend Duke Energy Corporation (NYSE: DUK). As the largest electric power holding company in the U.S. and a diversified utility company (market cap of $47.38 billion), Duke will grow well into the future. Similar to Southern, Duke boasts a strong cash position and dividend payment history—the firm has paid every quarterly dividend over the past 86 years. Even with the low interest rates set by the Federal Reserve and central banks (bond holders beware), Duke is positioned to provide investors with generous payments.

A study released by Barclays declared that Duke will trade at a 10%-15% premium to the utility sector after outlining its long-term growth strategy at a public meeting in February. The analysts anticipate a total annualized return of 10.6%—great news if you’re holding some shares. I would expect Duke's shares to rise after it announces 4th quarter earnings on Feb. 13.

DUK Dividend Yield data by YCharts

#3

Next, consider NextEra Energy (NYSE: NEE). NextEra Energy serves customers in Florida and has a market cap of $30.68 billion. Next Era positions itself as the leading renewable energy company in America. It produces nearly 93% of its power from renewable, nuclear, or natural gas sources—not coal. As a result, many people support NextEra’s initiatives. Furthermore, NextEra is able to adjust to the energy and economic conditions because of the various sources from which it generates its power, while its competitors suffer.

Additionally, analysts are expecting income of $0.96 per share after the firm releases its earnings report, a 3.2% rise from the same quarter last year. NextEra boasts a remarkable ROE, consistent dividend payments, and a BBB bond rating. I anticipate that NextEra will continue to reach new highs during 2013.

SO Return on Equity data by YCharts

#4

Dominion Resources (NYSE: D) has a market cap of $30.96 billion and owns a remarkable 27 gigawatts of generation capacity, 11,000 miles of natural gas transmission, and 6,300 miles of electric transmission lines. Dominion is involved in a variety of energy commodities—from energy generation to distribution. As a result, the company is able to mitigate potential risks like volatile energy prices.

Like the aforementioned companies, Dominion consistently pays dividends—in fact, it just paid its 340th consecutive dividend. The firm’s board recently announced that Dominion is paying a $0.5625 per share dividend in March to shareholders of record by Feb. 28. Also, as seen by the above graph, Dominion has posted a historically high ROE for investors. The company is announcing its earnings report on Jan. 31.

Conclusion

As mentioned with Southern, each of the utility companies above serves customers in a different geographic region. None of them directly competes against each other for customers. Additionally, each company is the central energy provider to their regions of service. If you’re looking for cash, and long term growth, these companies are good choices for you. 


marascobn1 has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources and Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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