Two Top Utilities for Income Investors

07/10/2018 5:00 am EST

Focus: UTILITIES

Richard Moroney

Editor, Dow Theory Forecasts

Regardless of macroeconomic headwinds, utilities remain appealing to income-minded investors. With that in mind, we review two top utility picks in our Top 15 Utilities portfolio, explains Richard Moroney, editor of Dow Theory Forecasts.

With an Overall rank of 91, CenterPoint Energy (CNP)  is the only utility stock in the S&P 1500 Index to score above 90. It also scores in the top quintile of S&P 1500 utility stocks for all three Quadrix factors currently working especially well.

CenterPoint’s price/sales ratio — one of the most effective factors both currently and over the long haul — is just 1.1, ranking third-lowest among utilities. CenterPoint operates an electric utility in Texas and six natural-gas utilities in Minnesota and several southern states.

The company made a couple acquisitions in the past two years to expand its unregulated business, which provides energy and services to commercial and industrial customers across the U.S. The consensus estimate calls for 17% higher per share profits this year on flat revenue.

Shares trade at just 17 times estimated 2018 profits, versus the average of 19 for S&P 1500 multi-utilities. CenterPoint, yielding 4.2%, is a member of our  Top 15 Utilities Portfolio.

UGI (UGI) is one of just a few utilities to perform well this year. The stock has delivered a total return of 6% in 2018, while utilities in the S&P 1500 Index have averaged a loss of 3%. Yet the stock still looks cheap in Quadrix, earning a Value rank of 75. UGI also scores well in two Quadrix factors that are highly effective.

UGI has a price/sales ratio of 1.2, fifth-lowest among S&P 1500 utilities, which average 2.2. It is expected to grow long-term profits at an annualized rate of 8%, ninth-best among utilities, averaging 5% growth. UGI distributes propane in both the U.S. and Europe, accounting for 68% of revenue in the 12 months ended March.

It also operates a natural-gas utility (18% of revenue) and midstream and marketing business (14%). March-quarter sales surged 29% as cooler weather drove up propane volumes and demand for natural gas. For the seasonally light June quarter, UGI is expected to increase earnings per share 78% to $0.16 on 11% revenue growth.  UGI is a member of our Top 15 Utilities Portfolio.

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