Utility companies can make excellent long-term investments for any portfolio. They generally have relatively low volatility, pay nice yields, and tend to be fairly recession resistant. Today, I’d like to look at a few of my favorites that all happen to report their second quarter earnings in the next week or so, Dominion Resources, Inc. (NYSE:D), SCANA Corp (NYSE:SCG), and Sempra Energy (NYSE:SRE). Let’s take a look at these companies and the reasons to own (or not to own) each one over the next several years.
Dominion Resources, Inc. (NYSE:D) is a gas and electric company based in Richmond, Virginia, and supplies energy services to about 4.6 million customers. The company has a total power generation capacity of 27.5 MW (megawatts) and delivered over 80,000 GWh (gigawatt-hours) of electricity last year. While renewable sources of energy don’t make up a substantial part of the company’s energy production yet, the company has made efforts to become more “green.” Dominion Resources, Inc. (NYSE:D) has stated a goal of reducing their air emissions by 80% by 2015, and is prepared to invest a total of $3.5 billion to reach that goal. Currently, Dominion Resources, Inc. (NYSE:D)’s power generation consists of 46% coal, 41% nuclear, 9% natural gas, 1% oil, and 3% renewable sources, such as hydroelectric.
As an investment, Dominion trades for 17.7 times this year’s earnings expectations of $3.35 per share, which are expected to grow by about 6% annually over the next several years. Admittedly, this does sound a little too expensive, so I’m watching Dominion Resources, Inc. (NYSE:D) for a pullback, perhaps after they report earnings on August 6. In terms of dividend yield, Dominion Resources, Inc. (NYSE:D) currently pays about 3.8% annually, which is nice but represents a payout ratio of about 70%, a little higher than I would like.
SCANA Corp (NYSE:SCG) is a smaller company, with a market cap about one-fifth that of Dominion. The company provides electricity and gas services in a large portion of South Carolina. The company recently began the first new nuclear construction in the U.S. in over three decades, and has been one of the leaders in environmentally friendly power generation, going so far as to encourage their customers to get involved and contribute to adding more renewable energy resources.
SCANA Corp (NYSE:SCG) is slightly more attractively valued than Dominion, trading for 15.5 times 2013’s expected earnings, which are expected to rise by about the same 6% annual rate. The company pays a 3.9% yield, which has been raised every year in recent history. One of the implications of the lower P/E multiple is that a similar dividend yield represents a smaller payout ratio, or the percentage of earnings that are paid to shareholders. SCANA Corp (NYSE:SCG)’s current dividend represents a payout ratio of just 60%, which gives the company more breathing room for future increases.