Two Utilities for Safe Returns

09/30/2016 9:00 am EST


Richard Stavros

Analyst, Global Income Edge, Utility Forecaster and Personal Finance

A safer way for income investors to get higher yields is to focus only on companies that have proven track records of paying growing dividends no matter what the market conditions, asserts Richard Stavros, editor of Investing Daily's flagship newsletter, Personal Finance.

When it comes to preserving wealth, utilities deserve their reputation for being safe ports in a storm, but the two below — both stellar, counter-cyclical electric utilities — are also among the industry’s most innovative.

I’ve been particularly impressed with the performance of wires company Eversource Energy (ES).

As energy distributors, wires companies are insulated from the fluctuating prices of coal, oil and natural gas, which can hurt many energy-producing utilities.

What’s more, wires companies will ultimately benefit from renewable energy sources like solar and wind, as these utilities are expanding to accommodate the new volume.

In fact, some energy experts believe wires companies will be the new widows and orphans stocks, those with dependable income and significantly less risk.

Wires companies are expected to be less risky than even vertically integrated energy-producing utilities that own their suppliers. We only wish there were more wires companies to invest in.

When we analyzed the utility sector, we found that compared to its peers Eversource Energy ranked in the top tier for productivity, or its efficient use of resources. This excellent electric utility offers a 3.29% dividend yield.

NextEra Energy (NEE) combines Florida’s growing population with an acquisition in Texas. As the Texas oil industry rebounds and the population in both states drives the demand for electricity higher, NextEra’s earnings will soar higher, too. 

The largest North American generator of wind and solar power, NextEra operates the third-largest nuclear fleet in the US.

With about 43,000 megawatts of generating capacity, including a number of natural gas-fueled facilities, NextEra provides wholesale power in 25 states and Canada.

Rarely do you find a utility that created a business from scratch, but NextEra has been a trailblazer in developing a national renewable business that many industry executives believe is the model of the future.

Another plus is NextEra’s financial stewardship. NextEra has a low payout ratio of 58%, leaving room for the dividend to grow, and its credit metrics or safety rating registers as a stellar 6 on a scale of 1 to 7.

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