5 Utilities to Consider: PPL Corporation (PPL), Exelon Corporation (EXC), American Electric Power Company, Inc. (AEP)

Page 1 of 2

When I was a kid growing up, I used to love playing Monopoly.  But I never sought to own the utilities, because unlike the other properties you couldn’t build houses or hotels on them once you accumulated all of them. That means that if someone landed on one of your utilities late in the game you couldn’t bankrupt them.  By contrast, if you owned Park Place and Boardwalk, and had either 4 houses or a hotel on a property that someone landed on, you could very easily bankrupt them and win the game.

Needless to say, Monopoly is just a game.  Except many investors look at utilities much the same way that I looked at them when I was a kid playing monopoly: utilities offer limited returns, so I would rather purchase something else.

PPL Corporation (NYSE:PPL)But as people get older, and presumably wiser, their risk tolerance changes.  They are no longer willing to assume a lot of risk to have a chance at handsome returns.  Their investment horizons change and they tend to place more value on solid, predictable returns.

That type of investor should consider investing in utilities that pay a nice dividend.  After all, most utilities provide investors with solid returns and peace of mind.  And some even have the potential to grow at healthy rates and beat the S&P.

What Utilities Should You Consider?

American Electric Power Company, Inc. (NYSE:AEP)

With more than 5 million customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia, American Electric Power is one of the largest utilities in the United States and one of the nation’s largest generators of electricity.  Furthermore, it owns the nation’s largest electricity transmission system.  So if you are thinking that this company is close to a monopoly, you might not be all that far off–except that the sector is highly regulated and this company was recently ordered to restore rates for small business customers following complaints that electricity bills had risen by unreasonable amounts.  On the positive side, American Electric Power Company, Inc. (NYSE:AEP) has a solid balance sheet, is well-managed, and has a track record for delivering results.  On the negative side, adverse weather could impact operations and the company operates in a capital intensive industry.  Overall, AEP is an attractive defensive opportunity that offers a solid annual return (dividends and moderate share price appreciation) in the 5% – 15% range with limited downside risk.

Exelon Corporation (NYSE:EXC)

Similar to American Electric Power, Exelon is one of the largest utility companies in the United States and one of the nation’s largest generators of electricity.  On the one hand, Exelon’s stock price has been whacked and it is trading close to its 52-week low.  On the other hand, Exelon’s shares have underperformed the market, the company recently cut is quarterly dividend to 31 cents, state regulatory commissions closely monitor Exelon Corporation (NYSE:EXC)’s return on equity, and Exelon’s nuclear-powered generation fleet is becoming less and less economical compared to alternatives.  Oh, and don’t forget that many analysts are forecasting that earnings will continue to decline.  All in all, I feel that there are a lot of negative expectations built into Exelon’s share price.  Even so, I see moderate to limited potential for share price appreciation (unless the price of natural gas increases) and expect a solid total annual return in the 5% – 10% range.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!