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Top Picks 2016: WEC Energy Group
01/11/2016 7:00 am EST
At its core, our Top Pick for conservative investors in 2016 is a simple story: Reliable dividend growth of 6% to 8% a year into the next decade from simply investing in its well run electricity and natural gas utility, located in economically healthy states with favorable regulation, asserts Roger Conrad, editor of Conrad's Utility Investor.
In the half-year since closing its merger with the former Integrys Energy, WEC Energy Group (WEC) shares have moved to a substantial discount to the average electric utility.
The yield is the highest since the fall of Enron in late 2001 and price:cash flow ratio is the lowest since the 2008-09 Financial Crisis. That's despite dividend increases totaling 17.2% above the pre-merger rate.
That discount won’t last forever, particularly as the stock market overall runs out of gas and investors seek safe havens.
Some 70% of WEC’s assets are located in Wisconsin, where it earns a superior 12.7% return on equity.
All it takes to get there is for management to execute its 10-year capital spending plan of $14 to $15.5 billion, much of which is automatically recovered in surcharges.
And there's the potential for further accretive mergers as well. Whatever it spends its money on, WEC’s balance sheet ensures available funding.
Strengths include just $334 million in debt maturities through the end of 2017, 2.1% of market capitalization, and compared to $2.2 billion in current assets on the books.
The company also has $2.8 billion in untapped credit lines and a super low cost of debt capital, with a yield to maturity on 30-year debt of less than 4.1%. WEC is best purchased on a dip to 50 or lower.
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