Wednesday, January 26, 2011

High Yield Utilities that can Benefit from Lower Fossil Fuel Prices

According to the U. S. Energy Information Administration, fossil fuels supply about 70 percent of the country's requirements for electricity generation. Currently the dominant fossil fuels used by the industry are coal, petroleum, and natural gas.

Many investors feel that the price of oil has peaked for now and is in a downtrend. Some analysts believe that due to the glut of natural gas and the recent major gas finds, that the price of gas will remain low for a while. The price of coal is much lower than it was in 2008. If this trend continues, investors could benefit from investing in utility stocks that use oil, gas, and/or coal as a major fuel source of electrical generation, since the cost savings for these companies should pass through to the bottom line. According to, there are around 30 electric utilities with yields above 4%. Many of these companies use fossil fuels as a significant source of fuel to generate electricity.

For example, Pinnacle West Capital Corp. (PNW) has one of the heaviest exposures, with approximately 31% of its electric energy coming from natural gas and oil. About 38% comes from coal and 27% from nuclear. This Phoenix, Arizona based electric utility trades at 14 times earnings and provides a generous yield of 5%. Earnings for the quarter ending September 30 were up 25%. The company reports its latest earnings February 18.

OGE Energy Corp. (OGE) has 38% of its energy coming from natural gas, with 60% from coal. The company serves the south central United States. The stock has a price to earnings ratio of 15 and a yield of 3.3%. Earnings for the quarter ending September 30 were up 19%. The company reports its latest earnings February 17.

Westar Energy Inc. (WR) generates about 7% of its energy from natural gas, with 78% from coal and 14% from nuclear. This utility, which serves Kansas, has a PE of 13.8 and a yield of 4.8%.

If you like utility stocks, you can find a free Excel database of utility stocks, which you can download, update and sort, at

Disclosure: Author did not own any of the above at the time the article was written.


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