Dominion Resources, Inc. (D), Sempra Energy (SRE): Three Utilities to Watch This Week

Dominion Resources, Inc. (NYSE:D)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

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

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.

Sempra Energy

Sempra Energy (NYSE:SRE) is right in the middle in terms of market cap, and is based on the West Coast, in San Diego. The company serves over 31 million people, and is actually the largest natural gas utility in the U.S. in terms of the number of customers served. The company operates in several segments, the largest of which are Southern California Gas (34% of revenues) and San Diego Gas & Electric (38%). The company also has a substantial South American business, with electric utilities in Chile, Peru, and Argentina.

The company is the most growth oriented of the three mentioned here, and its valuation and yield reflect that. Sempra Energy (NYSE:SRE) currently trades for 19.6 times this year’s earnings, which are projected to grow at around 8% annually going forward, and according to the company this rate could rise to 10% in the right conditions. Also, Sempra Energy (NYSE:SRE) pays a lower yield of 2.9%, representing just a 55% payout ratio. This also is a good indicator (although not always) of how aggressively a company plans to try to grow. A lower payout leaves more money to invest back into the company.

Thoughts

These are three very different companies with different risks and goals. Of the three, SCANA Corp (NYSE:SCG) is my preference right now due to their pioneering nuclear developments and very attractive valuation. Bear in mind that this is earnings season and all three of these companies are yet to report. The outcome of their earnings reports can change the valuation (and attractiveness of each company) literally overnight, so those who may want some utilities exposure in their portfolios should keep an eye on these companies and what they have to say during their earnings calls.

The article Three Utilities to Watch This Week originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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