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 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

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!