Top Performing Utility Dividend Stocks So Far In 2014

by Robert Hauver
The market has had a bumpy ride so far in 2014, with February turning in the best performance, rising over 4%, after January’s -3.6% pullback. Cap this off with a less than 1% gain for the S&P 500 in March, and you’ve got an unimpressive 1.3% gain for the first quarter:
SP-4-9-14
With this kind of up and down ride, you’d want to find some dividend stocks which offer defense, in addition to income. With the pullback in many biotech stocks, the Healthcare sector no longer leads,(although it’s still up nearly 5%), but has given way to the Utilities sector, which is up over 10% year-to-date.
Here’s a look at the chart for the Utilities ETF, XLU:
XLU-2014-04-08
We looked further into XLU’s top holdings, and came up with these top 5 utility stocks, all of which are large cap dividend paying stocks. Another common feature is that they all have somewhat lower forward P/E’s, meaning that their earnings should improve in their next fiscal year. Duke, DUK, and Southern, SO, have the lowest P/E’s, relative to their 5-year P/E ranges:
UTIL-PE
This is how they’ve performed year-to-date, and over the past month, and over the past 52 weeks. Nuclear-based Excelon, EXC, has outperformed the pack year-to-date, and over the past month, but is still up only 3.62% over the past year. Contrasting with that performance is more steady Next Era Energy, NEE, which has made over half of its 1-year 25.90% gains, by rising 13.61% in 2014:
UTIL-PERF
Dividends: With their 4%-plus dividend yields, Southern CO., SO, and DUK, are both listed in the Utilities section of our High Dividend Stocks By Sector Tables. Although their yields are lower, Dominion, D, and NEE, have the best 5-year dividend growth rates:
UTIL-DIV
Options: If you want to add more downside protection to these stocks, selling covered calls offers you more immediate income, and a lower breakeven. NEE has the most attractive call options of the group. This June $97.50 call pays $2.60, over 3 times NEE’s next quarterly dividend. (Our free Covered Calls Table has more info on this and over 30 other trades.)
UTIL-NEE-CALL
Here are the major income scenarios for this trade. The $97.50 strike price is $1.07 above NEE’s price/share, which amply rewards you if your shares get assigned prior to the ex-dividend date for the $.73 dividend:
UTIL-NEE-CALLINC
Selling cash secured put options is another way to profit from these defensive stocks. In fact, if you sell puts below the stock’s share price, you’ll get an even lower breakeven, and improve upon their defensive nature. This is another June trade, but this put has a $95.00 strike price, and a $92.05 breakeven, which is 4.5% below NEE’s price/share. You won’t receive any dividends, but, just like selling calls, you’ll be paid your option premium within 3 days of the trade, often sooner. You can find more info about this and over 30 other trades in our Cash Secured Puts Table.
UTIL-NEE-PUT
Financials: It’s a mixed bag, Dominion and Next Era have an edge over the rest of the group for some of these metrics, but they do carry more debt:
UTIL-ROE
Valuations: Excelon has the lowest valuations for these metrics:
UTIL-PB
Disclosure: Author was long shares of Southern, SO, at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.
Copyright DeMar Marketing 2014. All rights reserved.

5 Defensive Utility Dividend Stocks

By Robert Hauver

With the S&P down 12% and the Dow off nearly 10% in the 2nd quarter, you might well be thinking about defensive dividend stocks.  Comparing the various Industry Sectors over the 2nd quarter, the Utility sector has held up the best, dropping approx. 5.2%, vs. Basic Materials’ 17.2% loss.

We screened the Utility section of our High Dividend Stocks by Sector tables for dividend paying stocks with above-average ROE, ROI, ROA figures, and below-average Debt/Equity and P/E’s.

This search yielded 5 stocks, 4 from the US, and 1 from Brazil:

  • CPFL Energia (CPL) – A Brazilian electric utility based in Sao Paulo, that serves 6.6 million residential, industrial and commercial customers, mainly in the Sao Paulo and Rio Grande do Sul areas.  In 2009, they expanded into thermoelectric, biomass, and wind generation projects.  CPL has benefitted from the rapidly growing Brazilian economy. They pay 2 semi-annual dividends, with ex-dates in March and August.
  • Excelon Corp. (EXC) – A hybrid nuclear/natural gas utility, with customers in southeastern Pa. And northern Illinois. They’re the largest U.S. nuclear producer. (For more details, see our previous article about EXC.)  They pay $.525/share quarterly, with their next ex-dividend date coming up in August.
  • DPL Inc. (DPL) – DPL’s subsidiary, the Dayton Power & Light Co., is a regional electric utility that services all customer segments in west central Ohio.  They pay $.303/share quarterly, with their next ex-dividend date coming up in August.
  • Energy Inc. (EGAS) – A natural gas utility that distributes and sells to residential, commercial, and industrial customers in Maine, N. Carolina, Wyoming and Montana.   They pay $.045/share monthly.
  • AGL Resources (AGL) – An energy services holding company, that distributes natural gas in 6 eastern US states. AGL also owns natgas pipelines and sells telecom conduit and fiber optic cable.  They pay $.44/share quarterly, with their next ex-dividend date coming up in August.

Here’s how these 5 utility stocks stacked up vs. Utility Sector Averages:

CPL EXC DPL EGAS AGL Utility Sector Avgs.
DIVIDEND YIELD 6.39% 5.52% 5.05% 4.97% 4.93% 3.43%
ROE

25.88%

21.55%

21.53%

19.64%

13.28%

11.65%
ROI

11.96%

6.07%

7.07%

13.31%

5.28%

4.36%
ROA

8.34%

5.51%

6.34%

9.34%

3.99%

3.87%
Debt/Equity

1.34

.97

1.14

.77 1.16 1.43
OPERATING MARGIN

17.12%

28.72%

26.29%

15.82%

21.46%

18.74%
P/E 13.80 9.17 11.98 6.03 11.67 17.27

There are covered call and put options available on EXC, DPL, and AGL.  With the market decline, put options are currently offering much higher bid premiums than call options. Many investors sell cash-secured puts, as an alternative to buying a stock outright, in order to decrease their risk, by achieving a lower break-even point.

Of these 3 stocks, Excelon currently has the most attractive yields for selling cash-secured puts, and is listed in our Covered Put table.

Disclosure: No positions at this time.

Disclaimer: This article is written for informational purposes only.

© 2010 DeMar Marketing.  All rights reserved.

Excelon (EXC) – A Utility Dividend Stock With Steady Growth Prospects

By Robert Hauver

Excelon, (EXC), is one of many dividend paying stocks in the Diversified Utility stocks sub-group, but what sets EXC apart from its peers are its abundant superior management, valuation and growth metrics, in addition to its wide moat within the reemerging nuclear energy production arena.  Exelon delivers electricity to approximately 5.4 million customers in northern Illinois via ComEd and southeastern Pennsylvania via PECO, as well as natural gas to 486,000 customers in the Philadelphia area via PECO. (EXC is listed in the Utilities section of our High Dividend Stocks by Sector tables).

With the BP Gulf disaster in the news every day, proven alternative energy sources are looking more attractive than ever. In a recent forum, Excelon CEO John Rowe called for the Senate to pass the pending energy bill that would put a price on carbon emissions, stating, “As the nation’s largest nuclear operator, Excelon also appreciates that the senators have recognized nuclear power as a low-emission source of baseload electricity, with an important role to play in the country’s transition to a low-carbon economy”.

As the lowest carbon emitter in the industry, Excelon stands to benefit from carbon cap and trade legislation.  EXC also created a new subsidiary in 2009, Excelon Transmission Co., which benefits from the expertise of former Federal Energy Regulatory Commission, (FERC) member Betsy Moler,  EXC’s VP of Gov’t Affairs and Public Policy.  Excelon’s website says that Ms. Moler led the FERC “landmark efforts  on open access and promoting competitive markets”. The subsidiary will focus on ways to capitalize on the expected $60 – $100 billion US investment in transmission over the next 10 years, such as moving “renewable  energy from the upper midwest and the Dakotas to population centers”, mitigating oversupply, improving reliability, and reducing congestion. (Source: Excelon website).

EXC’s two other divisions, ComEd and PECO, “will make up to $725 million in “smart grid” investments in Illinois and PA over the coming years”, and should give EXC a “regulated return on investment and stable earnings growth”.  PECO has already been awarded the maximum allowable grant of $200 million by the US Dept. of Energy for their current smart grid project in Philadelphia.

PECO has also filed for approvals to increase its annual electric and natural gas delivery revenues by $316 million and $44 million, respectively, beginning January 1, 2011.

Here are the figures of our Industry Comparison:

Excelon Diversified Utilities Group
P/E 9.38 16.23
Long-term EPS Growth 19.00% 5.00%
PEG 1.18 3.17
Profit Margin 16.09% 7.64%
Debt/Equity .97 1.30
Price/Cash 10.18 89.01
ROE 21.55% 9.96%
ROA 5.51% 2.86%
ROI 6.07% 3.38%
Dividend Yield 5.50% 5.01%

Excelon currently has a 50.58% dividend payout ratio, and pays a $.525/share dividend quarterly.  Their most recent ex-dividend date was May 12th, with a payout date of June 9th.

There are also options available for Excelon.  Our Covered Calls table currently lists the Jan. 2011 $40.00 call, which nets $2.25/share in call option premium and $1.05 in dividends. At Friday’s $38.74 price, your static/unassigned yield would be 8%. The break-even is $35.44.  If EXC rises to around $42.30 or higher, your underlying shares will most likely be assigned, giving you an additional $1.26/share profit, or 3%. The total assigned yield would be 11% for just under 8 months, or 17.7% annualized.

Investors looking for a lower entry point could sell cash-secured put options, and get a $34.40 break-even. The Jan. 2011 $37.50 put was bid at $3.10 today, which equals an 8% nominal yield, or 12.89% annualized.

Disclosure: No positions in EXC at this time.

Disclaimer: This article is written for informational purposes only.