Integrys Energy Group (TEG) is a higher dividend-paying income stock that faces a period of slower growth, analysts say, as it works to reorganize and reinvest. TEG’s leadership, however, sees a return to solid growth in a few years, which should support dividends in time.

Integrys Energy Group is a diversified energy holding company with regulated natural gas and electric utility operations, non-regulated energy operations, and an approximate 34 percent equity ownership interest in ATC, a regulated electric transmission company.

ATC is a federally regulated electric transmission company with operations in Wisconsin, Michigan, Minnesota, and Illinois. ATC began operations in 2001. 

The regulated natural gas utilities provide service to approximately 1.68 million residential, commercial and industrial, transportation, and other customers located in Chicago and the northern suburbs of Chicago, northeastern Wisconsin and an adjacent portion of Michigan’s Upper Peninsula, various cities and communities throughout Minnesota, and the southern portion of lower Michigan.

TEG’s regulated electric utility operations WPS and UPPCO provide service to approximately 493,000 residential, commercial and industrial, wholesale, and other customers. WPS’s customers are located in northeastern Wisconsin and an adjacent portion of Michigan’s Upper Peninsula. UPPCO’s customers are located in Michigan’s Upper Peninsula.

TEG pays an annualized dividend of $2.72 per share, which provided a 4.97 percent yield at recent prices.

Integrys Energy Group has a market cap of $4.28 billion in a sector, multi-line utilities, where the average company size is $4.58 billion. Its trailing 12-month P/E ratio is 21.46 and its five-year projected price-to-earnings-growth (PEG) ratio is 4.29.

Its projected earnings per share growth for the coming year is 5.81 percent, compared to a sector average of 4.51 percent.

“With the rate cases and the continued capital investment, both in environmental projects and AMRP (Accelerated Main Replacement Project), that's going to drive up our utility earnings. Then, our retail operations at Integrys Energy Services is expected to continue to grow as well. So when you put it all together, we are estimating that by 2015, we'll have that 4% to 6% annual average,” Charlie Schrock, TEG's chairman, president and CEO, said in a recent conference call with analysts.

Dividend growth

Wall Street is neutral on TEG, including Citigroup, Zacks Investment Research, Ned Davis Research, and Standard & Poor’s Equity Research.

“Our 12-month target price of $53 is 14.5X our 2013 EPS estimate, a small discount to multi-utility peers.We think this valuation is warranted in view of the anticipated absence of dividend growth over the next several years and the near peer average earnings growth we see,” S&P analysts said May 17.

Integrys Energy Group next reports on Aug. 1.