Utilities Select Index sales, earnings, and dividends have grown at a CAGR[1. Compound annual growth rate] of 1.9%, 1.7%, and 3.6%, respectively, between 2012 and 2017. The sector’s valuation might anticipate liberal environmental regulations, offset by innovation in battery technology. This sector may also be reacting positively to low input prices and persistently low interest rates.
Consolidated Edison’s (ED) revenue has fallen 3% and 4% in last two years due to declines in its operating segments. It has recorded growth in operating income and EPS[2. Earnings per share] in the same timeframe. Its 1Q17 revenue growth was driven by the electric, gas, and steam segments. That performance translated into growth in operating income and EPS. Diversified Utilities haven’t generated enough free cash flow to cover its dividend commitments in the last five years and 1Q17. But the company has managed to maintain a positive cash balance. The debt-to-equity ratio has remained within acceptable levels and is on par with Duke Energy (DUK). Its stock price has grown 9.3% on a YTD [3. Year-to-date] basis.
Consolidated Edison’s PE of 19.5x compares to a sector average of 62.7x. Its dividend yield of 3.4% compares to a sector average of 3.5%. Duke Energy offers a dividend yield of 4.3% at a PE[4. Price-to-earnings ratio] of 22.5x.
Consolidated Edison had a dividend payout ratio of 65.7% compared to Duke Energy at 83.8% in fiscal 2016.
Northwest Natural Gas
Northwest Natural Gas’s (NWN) revenue has fallen in the last three years. Natural gas tends to be very volatile and based primarily on weather patterns, which companies have no control over. Revenues fell 4% and ~7%, respectively, in the last two years due to charges pertaining to the company’s environmental regulatory proceeding. However, NWN has recorded growth in operating income and EPS for fiscal 2016. The gas utilities company has generated enough free cash flow to honor its dividend commitments in the last three years and 1Q17. It has managed to record a positive cash balance. Northwest Natural Gas and Atmos Energy (ATO) have fairly similar debt-to-equity ratios, and both are within acceptable limits. NWN’s stock price has grown 0.9% on a YTD basis.
Northwest Natural Gas’s PE of 28.5x compares to a sector average of 21.8x. Its dividend yield of 3.1% compares to a sector average of 3.3%. Atmos Energy offers a dividend yield of 2.1% at a PE of 24.8x.
Northwest Natural Gas had a dividend payout ratio of 85.4% in fiscal 2016 compared to Atmos Energy’s 50.1%.
The PowerShares S&P 500 High Dividend Low Volatility Portfolio ETF (SPHD) offers an annual dividend yield of 3.8% at a PE of 15.1x and counts Electric Utilities as its top allocation at 22%. The S&P 500 Dividend Aristocrats ETF (NOBL), at a PE of 20.2x, offers an annual dividend yield of 1.9% with very low utility exposure.