Saturday, July 23, 2011

Rate Increases for High Yield Electric Utilities

The number one choice of income investors is utility stocks, especially electric utilities. What electric stocks might give you the biggest charge for your portfolio? One area that investors should look at are the companies that are receiving rate increases, such as the 2.2 percent rate hike for Hawaiian Electric (HE) and the $172 million a year that Ameren (AEE) will receive through its Ameren Missouri division. just updated its list of electric utility stocks and there are over 25 with yields in excess of 3%. Hawaiian Electric and Ameren made the list of the top ten, in terms of yield. These stocks can usually provide relative security, safety, and stability compared to stocks in many other sectors, through the payment of fairly high dividends.

Hawaiian Electric Industries Inc. (HE), the largest supplier of electricity in the state of Hawaii, is one of my favorite utilities (although I still don't own any shares). I like the fact that it generates electricity from very diverse sources of fuel: oil, coal, hydro, bagasse, recycled oil, wind, geothermal, waste-to-energy, and solar. In case you are wondering what bagasse is, it is sugarcane waste.

One of the nice features about Hawaiian Electric is that about 20,000 Hawaii residents are shareholders of the company. This can make it a little easier for the company to get rate increases as the shareholding residents may not like their electric rates going up but they understand that the company needs to make money and keep paying out those high dividends. The company is also involved in developing an electric vehicle industry in the state.

Hawaiian Electric trades at 14 times forward earnings and sports a generous yield of 5%. Dividend payouts of $115 million are easily covered by the operating cash flow of $317 million. Earnings for the latest quarter were up 4.9% on a 14.8% increase in revenues. The company reports August 3.

Ameren Corporation (AEE) is an electric utility holding company that serves 2.4 million electric, and 900,000 natural gas customers in Missouri and Illinois. The stock has a forward price to earnings ratio of 14 and provides a fairly high yield of 5.2%. Unfortunately, earnings were down substantially for the latest quarter, dropping more than 30% on a slight reduction in revenues. Fortunately, dividend payouts of $371 million are significantly covered by operating cash flow of $2 billion. The company reports earnings on August 4.

For more top yielding utilities, you can access a free downloadable database of high yield electric utility stocks including one which yields more than 6%, which you can update, change, and sort, at

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


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