I know it sounds like an oxymoron to suggest that investors need to look for the safest utility stock. However, there are underlying risks in the utility sector that investors seem to be forgetting about. A simple measure, like a dividend’s payout ratio is being ignored in favor of the assumption that utilities always pay their dividends. Investors in companies like Exelon Corporation (NYSE:EXC) can unfortunately attest to the fact that dividends are not cast in stone. The good news is, for every Exelon Corporation (NYSE:EXC) there is an Integrys Energy Group, Inc. (NYSE:TEG).
Thinking Outside Of The Box
It seems like whenever an investor asks for a utility stock recommendation, the same names are always suggested. The stock answer is, if you want to buy a utility, go with The Southern Company (NYSE:SO), Duke Energy, or Consolidated Edison. There isn’t anything wrong with each of these companies. However, I like to look for opportunities that others might have overlooked.
I regularly use the Fool.com CAPS Screener to find stocks. This stock screen delves into the collected intelligence of the CAPS community, combined with financial metrics, and stock characteristics. I wanted exposure to the utilities industry, and I wanted at least a 4% yield, so I went to the CAPS Screener first.
Who The Heck Are They?
One of the names the screener suggested was Integrys Energy Group, Inc. (NYSE:TEG). The stock had an over 5% yield at the time, and I decided to put it on my list to research. In short, Integrys was a great regulated utility that also operated an energy trading business that apparently they didn’t feel comfortable with. However, Integrys was intent on spinning off or selling that business, and the rest of the company seemed to be doing just fine. Since my discovery, Integrys has pared back their energy trading business significantly, and today it represents a regulated utility in the north-west.
I can honestly say, Integrys Energy Group, Inc. (NYSE:TEG) might be the safest utility in the industry. When it comes to their peers, I wanted to be sure the company was doing well, so I added companies like Exelon, The Southern Company (NYSE:SO), and Wisconsin Energy Corporation (NYSE:WEC) just for comparison. From what I can see, Integrys Energy Group, Inc. (NYSE:TEG) is doing the best of the bunch.
These 4 Measures Suggest Investors Should Check Into Integrys Today
The most obvious attraction of a utility stock is its yield. By this measure, Integrys pays a yield of about 4.85%, whereas The Southern Company (NYSE:SO) pays about 4.6%, Exelon Corporation (NYSE:EXC) pays 4%, and Wisconsin Energy Corporation (NYSE:WEC) pays about 3.4%. With a class leading yield, the company still doesn’t get talked about.
As if Integrys Energy Group, Inc. (NYSE:TEG)’ yield wasn’t enough, the company also sports the highest expected growth rate of the bunch. In the next few years, analysts expect the company to grow earnings by 5.5%, which just outpaces Southern Co at 4.8% and Wisconsin Energy Corporation (NYSE:WEC) at 4.9%. Unfortunately for Exelon investors, their company is expected to report an EPS decline of about 3.4% over the next several years.