PPL Corporation (NYSE:PPL)
PPL generates electricity from power plants throughout United States and delivers electricity to customers in Pennsylvania, Kentucky, Virginia, Tennessee and the United Kingdom. On the positive side, PPL Corporation (NYSE:PPL) recently raised its dividend, has more than doubled its sales over the past 10 years, and its transition to a more regulated business mix should stabilize earnings and catalyze dividend growth. On the negative side, even though PPL is making headlines for reaching new 52-week highs, it has underperformed the S&P over the past 12 months. On balance, this company is attractively valued given that it is trading at a P/E ratio of less than 12 and paying a dividend around 5%.
UIL Holdings Corporation (NYSE:UIL)
With a Market Cap under $2 billion, UIL is a fraction of the size of American Electric Power, PPL, and Exelon. But unlike many of the larger companies, UIL has demonstrated the ability to grow at impressive rates. On one hand, UIL has a dividend yield of around 4.5% and the potential to grow sales and earnings at healthy rates. And UIL appears to be doing the right things: increasing its cash flow, investing in infrastructure, and controlling expenses. On the other hand, capital spending is a concern, as is UIL’s lack of scale. Because of its size and potential for growth (think capital expenditures), I feel that this company is the riskiest on this list. For the same reasons, though, I also feel that this company has the most upside potential.
Westar Energy Inc (NYSE:WR)
Westar Energy is the largest electric utility in the state of Kansas. Compared to the other 5 companies on this list, Westar Energy is slightly larger than UIL and significantly smaller than all of the rest. On the positive side, Westar has a fairly healthy balance sheet, a solid dividend yield of more than 4%, and has consistently grown revenues. On the downside, Westar faces many of the same risks that other utility companies face such as exposure to unfavorable weather conditions (remember it services “tornado alley”) and regulatory issues. On balance, I think that this company is fairly valued. But I expect that its performance will improve over the next year and that it will deliver a total return around 8% – 10%.
My Foolish Take
Before investing in utilities you should consider a number of factors, such as the fact that most utilities are generally low risk, bring moderate returns, and that company performance may differ vastly from sector performance (many analysts underweight the sector but overweighting certain companies). Keep in mind, however, that some utilities have outperformed the S&P over the past year. Generally speaking, I feel that scale is a significant competitive advantage and that the larger utilities are better positioned to deliver results.
The article 5 Utilities to Consider originally appeared on Fool.com and is written by Ryan Peckyno.
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