Integrys Energy Group, Inc. (TEG): The Safest Utility Stock?

The third measure really gets to the core of why Integrys looks the safest of their peers. Utilities use long-term debt to finance their operations, and sometimes this can lead to a high interest expense. To get a sense of the amount of interest a utility pays, I look at interest expense versus operating income.

If a company’s interest expense gets to the point of being higher than their operating income, investors should worry. After all, how do you pay dividends, when you can’t afford your debt payments? By this measure, Integrys Energy Group, Inc. (NYSE:TEG) is paying just 10% of their operating income towards interest payments. Wisconsin Energy has the next lowest percentage at 20.25%, Southern Co pays about 24%, and Exelon’s financial challenges are very clear, with a percentage of 122%.

In addition to a low percentage of interest expense, Integrys also has the best core free cash flow payout ratio of the group. Core free cash flow eliminates a lot of accounting adjustments and gets to the root of how much a company has on a regular basis. This measure simply uses net income, plus depreciation, and then subtracts capital expenditures.

Integrys’ core free cash flow payout is 49.80%, which is slightly better than Wisconsin Energy at 55.1%. This measure is far better than Southern Co and Exelon’s performance, as both of these companies reported negative core free cash flow last quarter.

The Bottom Line
It shouldn’t be too hard to understand why I own Integrys Energy Group, Inc. (NYSE:TEG) shares personally. For investors looking for a good yield, good growth, and a safe dividend, I haven’t seen a better performance across the industry.

The article The Safest Utility Stock? originally appeared on Fool.com and is written by Chad Henage.

Chad Henage owns shares of Integrys Energy Group (NYSE:TEG). The Motley Fool recommends Exelon, Southern Company, and Wisconsin Energy. Chad 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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