The Three Best Dividend Stocks from the Utilities Sector

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

Investors can look to utilities for solid profits. Though the sector has not been able to match the highs of others or even its own former glory, there are steady increases to be found in utility companies. Utilities have shown especially good promise since the beginning of 2013, reaching a 5 year high at the end of Q1. The dividends for utilities exceed those of other sectors and give stable and profitable returns to investors. Here are a few of the more worthy companies to choose from.

Southern Company (NYSE: SO)

Southern Company provides electric services in four Southeastern states through its traditional operating companies: Alabama Power, Georgia Power, Gulf Power and Mississippi Power. The company has increased its dividends over the years, and Southern recently announced it will increase its quarterly dividend to $0.5075 cents per share. This makes its annual dividend $2.03 per share.

Is The Dividend Safe?

Southern is a safe pick with high dividends and low volatility. The company has shown smart management and strong financials to back its returns for investors. During Q1, Southern has seen positive signs of economic growth in the Southeast. With the improving economic environment, its housing-related manufacturing segments are starting to strengthen, and its economic development pipeline has been healthy as well.

As a result, its first quarter revenue of $3.9 billion represents an increase of 8.1%. Its kilowatt-hour sales increased 2.3% in retail customers and commercial energy, and residential sales increased 1.2% and 8.3%, respectively. Its payout ratio of 72.8% is manageable. Southern looks like a safe pick with a price to cash flow ratio of 7.6.

Duke Energy Corporation (NYSE: DUK)

Duke Energy Corporation provides services to over 4 million customers. Over the years, the company has been consistently paying increasing dividend--in fact, over the last five years it has been able to increase its dividends by 10.87%. At the moment, Duke offers a quarterly dividend of $0.765 cents per share.

Is The Dividend Safe?

Duke has become the largest regulated utility in the U.S. after its merger with Progress Energy. Duke Energy is now focusing on achieving its target of 5% to 7% cost synergies. The company is seeking to expand its size by acquisitions. Recently, it acquired two commercial solar power projects from project developer Solar World. The company is also working on major construction projects, which will provide increased diversity to its generation mix for decades to come.

Duke Energy has displayed solid financial performance over the years. Since 2010, Duke Energy's net income has increased from $1.320 billion to $2.107 billion in TTM, an increase of 59.62%. Along with solid profitability, its cash flows are growing year over year. In the trailing twelve months, its operating cash flows went up to $5.4 billion. Due to massive spending on acquisitions and expansion projects, its free cash flows are negative at $425 million. Recently, the company announced Q1 earnings with consolidated revenue of $5.90 billion, up 62.5% over the past year quarter. I believe its dividends look safe as the company has strong top line growth with manageable debt levels.

DTE Energy Holding Company (NYSE: DTE)

DTE Energy is engaged in the business of electricity, natural gas, and storage services throughout Southeastern Michigan. DTE Energy has turned out to be a solid investment for dividend investors over the past two years. Recently, the company announced an increase in its quarterly dividends of 5.64%. At present, the DTE offers a quarterly dividend of $0.655 cents per share.

Are The Dividends Safe?

DTE is on the right track and working hard to become the best operated energy company in North America. DTE focuses on providing consumers with clean, safe, and reliable energy at a reasonable price. The company is diversifying its project portfolio to this end, and the portfolio now includes nuclear, coal, natural gas, and renewable energy projects.

Recently, the company announced its first quarter results with massive earnings of $234 million. Its payout ratio is also at a manageable level, which is currently standing at, 61.5%. Cash flow from operations is also growing year over a year, which is a positive sign for dividend investors. It is worth noting, however, that business and financial results can be impacted by weather conditions. Thus in the last quarter the company has been able to increase its earnings by $78 million in part due to normal weather conditions.

Conclusion

Southern Company has a healthy financial position with diversified operations. With the improving economy, all of its business segments have shown positive trends. On the other hand, Duke Energy has been increasing its revenue base with acquisitions, which have led it to increase revenue by 62.5% in the latest quarter. With the recent dividend increase of 5.64%, DTE Energy is also turning out to be an attractive choice for dividend investors.

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


siraj sarwar has no position in any stocks mentioned. The Motley Fool recommends 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!

blog comments powered by Disqus