Wednesday, August 10, 2011

My Utility Stocks

I have recently been talking about a lot of power generating stocks that I do not own. Most of the ones I reviewed, I did not care to own. So today, I thought I would talk about the power generating stocks that I do own. Emera (TSX-EMA), Fortis (TSX-FTS), and TransAlta (TSX-TA) are my power generating stocks.

I have had investments in both Fortis and TransAlta for a long time, dating back to 1987. My investment in Emera started much later, in 2005. I felt in 2005 that I had sufficient investments in both Fortis and TransAlta and that it would be wise to start investing in another power generation company.

I had been looking to buy some Emera (TSX-EMA) stock recently because I want to sell some of my CMG stock, but I felt that the price in the $32 range was too high, both by P/E Ratio and by dividend yield. This stock, in the end, was hit by the recent market turmoil and I finally bought some at $28.85. At this price, the Dividend yield was at 4.5% (higher than the 5 year median of 4.4%) and the expected P/E for 2011 was 16.12 (which was about the 5 year median P/E Ratio).

I have been planning selling CMG and buying Emera for a while. I waited until the Bid for CMG and the Ask for Emera was to my liking. I put in the Bid price for CMG and the Ask price of Emera, and limited the buy and sell to one day. I was usually checking on these prices in the morning so I would have a good part of the day to deal with a sell and a buy.

This is a rather unremarkable stock. It has decent payout ratios of 70% for earnings and 32% for cash flow as median payout ratios over the past 5 years. Dividend growth over the past couple of years has been very good with the most recent increase at 15%. These are much higher rates than is typical of this stock. Over the past 6 years, I have had a total return on this stock of 12% per year. See my spreadsheet at ema.htm.

My next power generation stock is Fortis (TSX-FTS), which I have had since 1987. Since I have bought this stock, I have made a total return per year of 13.4%. Personally, I like Fortis better than the other two stocks I have, but I am unwilling, even for a great stock, to be too much of my portfolio. Its payout ratios are very good at 65% for earnings and 27% for Cash Flow as median payout ratios over the past 5 years.

The recent dividend increases have been lower recently, with the most recent increase at only 3.6%. However, the 5 year growth in dividends is 14% per year. Over the years, this stock has had good and consistent growth in revenues, earnings, dividends, total return and book value. See my spreadsheet at fts.htm.

The last stock to talk about today is TransAlta (TSX-TA). My earnings on this stock has been much lower than the above two stocks, coming in at 7.9% per year since I bought it. Their last dividend increase was in 2009 and past dividend increases has been around the background inflation. Since they have stopped increasing the dividends, this stock has not grown in capital gains.

The dividend increases stopped when it could not earn enough to cover the dividend payments. The 5 year median Payout Ratio for earnings is currently at 117%. The 5 year median Payout Ratios for Cash Flow is good at 31%. The best that can be said of this stock lately is that all the analysts seem to have raised the earnings estimates for this stock for 2011 and 2012.

Analysts look at this stock as a good dividend payer and this is indeed the case. It has a current dividend yield of 5.7%. It is a stable company and it is a low risk investment. What you can probably expect from this company is a long term total return of 8% per year, with 5% from dividends and 3% from capital gain. It is not an exciting stock, but it is a good dividend payer and it can provide stability to your portfolio. See my spreadsheet at ta.htm.

Tomorrow, I will talk about my pipeline stocks.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

1 comment:

  1. Good timing! This is exactly what I've been looking at the past couple days - utilities and pipelines. Great information as always and looking forward to tommorrows post.