Entergy's Nuclear-Powered Dividend

04/25/2011 3:01 pm EST


Roger Conrad

Founder and Chief Editor, Capitalist Times

This efficient utility’s 5% yield is a gift despite regional opposition to its nuclear plants, writes Roger Conrad, editor of Utility Forecaster.

Entergy (ETR) owns two nuclear power plants in the final stage of winning an operating license extension from the Nuclear Regulatory Commission (NRC), including the Indian Point plant upriver from New York City.

It also owns four “boiling water” nukes, the same type struck last month in Japan by an earthquake measuring 9.0 on the Richter scale, as well as the ensuing 50-foot-high tsunami.

That’s why it’s no surprise that Entergy shares have plunged from the mid-70s into the 60s since the Fukushima reactors’ woes began. But its wealth-building potential is very much intact.

Entergy’s key is consistent, strong operating performance. Last month, the NRC extended the license of the Vermont Yankee nuclear plant over fierce opposition from the state government, no doubt noting the operating-rate boost from 78% to 94% since Entergy bought it.

The company’s ten nuclear plants delivered a record 94.1% operating rate in 2010.

Entergy’s finest hour was in the wake of Hurricane Katrina, which wiped out its home city of New Orleans. Standard & Poor’s recently acknowledged its rebuilding effort by boosting the Big Easy unit’s credit rating to BBB.

Safety costs are likely to rise at US nuclear plants. And while a 50-foot tsunami would wipe out New York City long before it reached Indian Point, New York Governor Andrew Cuomo will oppose re-licensing. Such are the dysfunctional politics of nuclear power.

Entergy, however, is set for earnings of $6.35 to $6.85 per share this year, and 6% to 8% annual growth thereafter. Throw in the 4.9% dividend, and that’s 11% to 13% annual returns.

Buy Entergy up to $80. [Shares traded below $69 Monday—Editor.]

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