Utilities are pillars of slow-and-steady investing, favored by their shareholders for their reliable results and strong dividends. Investors who need income, such as those in or nearing retirement, especially prefer utilities.
At the same time, though, not all utilities are created equal. Poor execution and management instability can cause just as much distress to a utility as it can to any other company, and there are definitely utility stocks performing better than others right now.
Slow and steady wins the race One of the most well-regarded utilities is Dominion Resources, Inc. (NYSE:D), a $36 billion company by market capitalization that has well served both consumers and shareholders alike for many years.
Dominion is performing strongly to start the year, and the remainder of the year should be strong. The company is excelling, reporting increasing revenues due to higher rate adjustments, and also improving performance from its electric service and gas transmission projects. This is how Dominion produced 5% operating earnings growth in the second quarter, and why it's expecting another 3% growth in the current quarter.
Dominion uses its strong business to handsomely reward shareholders through a compelling dividend that has stood the test of time. Dominion recently paid its 342nd consecutive dividend, a streak amounting to nearly 86 years.
I've written favorably about PPL Corporation (NYSE:PPL), a utility that offers a unique twist of operating on two continents. PPL's business is split between the United States and the United Kingdom. There isn't anything terribly exciting about PPL, but utility investors should view that as a plus. PPL simply goes about its business, and offers investors a well-supported 5% dividend yield.
Why the future is bright for Dominion and PPL Both Dominion and PPL have plenty of room in the future to keep paying and raising their already-strong dividends. That's because each has a well-entrenched strategic vision to ensure growth. From 2013 to 2017, Dominion is planning $3 billion in annual capital expenditures to improve and build out its infrastructure; it's planning to spread its investments across its business units. In total, Dominion points investors to more than 40 growth projects in process.
For Dominion, these initiatives are already paying off. The company is excelling, reporting increasing revenues due to higher rate adjustments, and also improving performance from its electric service and gas transmission projects. This is how Dominion produced 5% operating earnings growth in the second quarter, and why it's expecting another 3% growth in the current quarter.
Meanwhile, PPL has different plans to grow profits. PPL is targeting focused cost reductions to provide additional financial flexibility. The company anticipates lower costs through 2017 from reduced capital expenditure requirements. In all, PPL is targeting $1.1 billion in lower capital expenditures from 2013 to 2017, which should help boost profitability down the road.