The utility industry has a great source of steady returns in the long term as this sector provides consistent recurring revenues and strong cash flow. In this article, we will consider three outstanding utilities – NorthWestern Corp (NYSE:NWE), NextEra Energy, Inc. (NYSE:NEE) and Dominion Resources, Inc. (NYSE:D) – in order to pick the strong growing utility that will help you preserve your money, while earning a solid dividend
NorthWestern Corp (NYSE:NWE) is one of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 673,200 customers in Montana, South Dakota and Nebraska. The population growth above the national average of 3.47% in these states will help NorthWestern Corp (NYSE:NWE) to meet the long-term target growth rate in earnings and dividends of 4-6% per annum.
The company also strives to restrict any new power the company has to buy from small and independent wind power projects in Montana because it relies primarily of coal for power generation. These reports have been quashed by the company’s launch of its first wind farm, the Spion Kop. Spion Kop and the much larger Judith Gap wind farms are providing energy at a lower cost than coal powered plants in Montana. When the state law regarding 15% power from renewable energy was passed, it was a burden on utility companies.
NextEra Energy, Inc. (NYSE:NEE) focuses on the generation, transmission, distribution, and sale of renewable energy in the U.S. and Canada. On May 23, President and Chief Executive Officer Jim Robo announced that NextEra Energy, Inc. (NYSE:NEE)’s principal rate-regulated utility subsidiary invested more than $4 billion into strengthening a customer value proposition by providing high reliability, award-winning customer service with the lowest typical residential customer bill in Florida.
NextEra Energy, Inc. (NYSE:NEE) Resources, the company’s competitive energy business, added roughly 1,500 MW of new U.S. wind projects in 2012, after completing the largest wind program. NextEra Energy, Inc. (NYSE:NEE)’s nearly $7 billion in investments in the state also includes more than 5,400 megawatts of generating capacity and the Texas-based retail electricity provider Gexa, serving more than 200,000 residential and industrial customers in 14 states and the District of Columbia.
Dominion Resources, Inc. (NYSE:D), the U.S.’s largest producer and transporter of energy, owns 11,000 miles of natural gas transmission, gathering and storage pipeline and 6,300 miles of electric transmission lines, provides 27,500MGW (megawatts) of generation. Dominion Resources, Inc. (NYSE:D) acquired and merged with several energy-related companies that allowed its growth.
The company has a high P/E ratio of 112.47, drastically increasing from a P/E ratio of 25 in early 2013. Electric distribution expects growth in demand averaging 2% of annual sales and a 455MW increase in energy demand during 2013-2017. Dominion Resources, Inc. (NYSE:D)’s investors actually have ambitious expectations about the future growth of the company due to some projects under development such as Blue Racer Midstream and Cove Point LNG. On the flipside, the stock could hit a brick wall if future earnings are not up to expectations.
On the cash flow front, NorthWestern Corp (NYSE:NWE) has seen a return to a positive cash flow for the last two years. For the past five years, the company’s revenue has either been marginally decreasing or stagnant. Its operating margin, on the other hand, has increased from 13.5% to 16.6% in the course of the last five years. This has understandably caused the EPS to show consistent growth, resulting in a 50% increase in its value from 2008.
NextEra Energy, Inc. (NYSE:NEE) presents great earnings and dividends. The company offers a 3.54% dividend, coupled with a consistent history of solid dividend growth.
Analysts expect NextEra Energy to earn $4.95 per share in 2013 compared to $4.54 per share in 2012. However, over the past decade the dividend payout ratio has been falling from 58% in 2002 to 48% in 2011. NextEra Energy has the lowest dividend payout ratio, a good sign for a utility company, since this ratio provides an opportunity for consistent dividend growth with minimum impact of short-term fluctuations in earnings.