Considering the volatility in the markets, expect many investors — especially near-retirees — to begin to seek safety and income. Utilities stocks provide a play for stable value along with yields that can exceed long-term Treasury bonds. If the retirees buy in, that could support the stock price, providing a solid total return.
Three utility stocks worth a look are Duke Energy (DUK), FirstEnergy (FE) and Southern Co. (SO).
Charlotte, N.C.-based Duke offers a 5.3 percent dividend. It agreed in January to buy Progress Energy for $13.7 billion to create the country’s largest utility. Duke’s profit rose 23 percent in 2010, to $1.3 billion. "It's a year you could learn to love," Duke CEO Jim Rogers told The Charlotte Observer.
The company expects earnings per share to land between $1.35 and $1.40 this year, up from $1 per share last year. Analysts are impressed by Duke’s cost controls and its earnings power. After completion of the merger with Progressive, the annual growth rate of earnings per share will climb to 5 percent, Christopher Muir, a Standard & Poor’s analyst, writes in a report.
The Akron, Ohio-based company generates a dividend yield of 5.9 percent. In February, Pennsylvania regulators approved FirstEnergy’s $4.7 billion purchase of Allegheny Energy. That makes FirstEnergy the country’s largest merchant coal-plant operator.
While FirstEnergy’s profit fell 23 percent in 2010, it still totaled $760 million. Meanwhile, the company expects a boost from its merger with Allegheny and its participation in a grid managing system based in Philadelphia.
“The stock is attractive for above-average total return,” notes S&P analyst Justin McCann.
Southern, based in Atlanta, is the largest U.S. utility in terms of market capitalization. It provides a 4.7 percent dividend. The company announced earlier this year that it’s investing up to $17 billion over the next three years to satisfy the rising demand for energy as the economy continues to rebound.
Southern operates strictly in regulated power markets and has the strong relationships with regulators that are necessary to succeed deploying that strategy, analysts say. Net income rose 19.3 percent to $2.04 billion last year from $1.71 billion in 2009.
The company’s success will allow it to boost its dividend payments by 4 percent a year going forward, says S&P’s McCann.
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