Utilities....Let's Take a Look
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There will be no QE3 for the time being. So there will be no “juicing” of the stock market by the Fed. “Operation Twist” is being continued (more of the same). Of course commodities are falling against the dollar (I think is a good thing), and in the long run it should be a break for the consumer. Disposable income should rise with falling oil prices putting more dollars to work in the economy. Overall, more people spending means good things for an anemic recovery. There are no safe havens in the market. I think solidly run utilities offer a better investment opportunity than U.S. Treasuries. Let's take a look at a Southern Company (NYSE: SO) , Duke Energy Corporation (NYSE: DUK) , PPL Corporation (NYSE: PPL) and FirstEnergy Corp. (NYSE: FE)
A few weeks back I read an interesting interview with the CEO of Southern Company, Tom Fanning. He is a forward thinking CEO whose company is building a coal fired plant in Mississippi, a nuclear plant in Georgia (the first since the Jimmy Carter era), and in Texas he is building a renewable power station. Just like a good stock portfolio he is diversifying his electric company. Part of the problem with coal fired plants is more than just cheap natural gas. According to Mr. Fanning it is that the Environmental Protection Agency has basically regulated coal out of the picture. He understands that compared to coal and nuclear the price of natural gas is a more volatile product. I like the way the man thinks, and I like the way he runs the company.
Duke Energy is a an electric company serving four million people in five states. It has a 25 cent per quarter dividend and it's stock price is up over 3.6% for the year. Its share price of under $23 makes it a reasonable entry point for an investor whose portfolio doesn't have any utility stocks. If energy demand picks up for its customers it could have an upside price increase of 2-6%.
PPL is a energy and utility holding company that operates in four segments. Its Kentucky Regulated segment supplies electricity to almost a million people and natural gas to 319,000. Its International Regulated segment supplies 7.8 million people with electricity in the United Kingdom. Its Pennsylvania Regulated segment supplies electricity to 1.4 million people. Its Supply segment owns and operates domestic power plants that markets and trades this electricity.
FirstEnergy is an electrical company that operates in three segments. Its Regulated Distribution segment supplies electricity to about 6 million people. Its Regulated transmission segment derives its revenue in part from providing transmission services while its Competitive Energy segment controls about 17,000 mega-watts which it sells.
So how does one choose? My first choice after comparing P/E, ROI, ROE and dividend yield would be PPL. PPL has the lowest P/E at 9.74 and the highest ROI (return on investment) at 5.05%. It also offers the best dividend yield at 5.23%. My second choice would be Southern because I like the management and it has dividend yield of 4.22% with a ROI of 4.32%. Which one would you choose?
mwm102 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.