Some of the more recent dividend hikes in the utility sector have been in shares of Duke Energy Corporation (NYSE: DUK), American Water Works Company, Inc. (NYSE: AWK), American States Water Company (NYSE: AWR), Xcel Energy Inc. (NYSE: XEL), and DTE Energy Co. (NYSE: DTE).  What we are trying to show you is that the trend of dividend hikes is not without precedent in utilities.

24/7 Wall St. is looking for utility dividend hike candidates after some recent hikes in the sector.  We have evaluated 9 large-cap or mid-cap dividend producing utility stocks for investors where you can expect a dividend hike in the coming months.  These include, in alphabetic order: American Electric Power Co., Inc. (NYSE: AEP), Constellation Energy Group, Inc. (NYSE: CEG), Dominion Resources, Inc. (NYSE: D), Entergy Corporation (NYSE: ETR), FirstEnergy Corp. (NYSE: FE), NextEra Energy, Inc. (NYSE: NEE), Pinnacle West Capital Corporation (NYSE: PNW), PPL Corporation (NYSE: PPL), and Progress Energy Inc. (NYSE: PGN).

Now that the Supreme Court has rejected some carbon-cutting measures, some additional drag has been removed from this sector that might have otherwise been victim to higher ten-year Treasury yields.  We would also like to note that we have tried to consider mergers in our analysis as this sector continues to consolidate.  Our basis is more of a standalone merger basis rather than solely due to mergers  into consideration here because we are looking for the companies which can grow their dividends based solely upon their own metrics.

American Electric Power Co., Inc. (NYSE: AEP) is perhaps our favorite utility and it was named as one of our ten stocks to own for the next decade.  Its shares recently traded at $38.18 and has a current dividend yield of 4.9%.  Its 52-week trading range is $30.34 to $38.99.  Thomson Reuters has estimates of $3.13 EPS for 2011 and $3.22 EPS for 2012.  AEP has had three straight quarters of a $0.46 dividend and this is likely to be grown in the months ahead.  The prior $0.42 quarterly dividend was only in place for two quarters before being raised.  The current pace comes to $1.84 per year.  Our take, look for $0.48 per quarter.  We are not looking for an equal hike this time around as earnings growth is only expected to be almost 3% next year.

Constellation Energy Group, Inc. (NYSE: CEG) is often treated as a controversial stock in the world of utilities.  While we said we are not taking M&A into consideration, it is in a pending deal with Excelon and we are still evaluating this on a standalone basis.  It recently traded at $37.70 and has a current dividend yield of 2.55%.  Its 52-week trading range is $27.24 to $37.87.  Thomson Reuters has estimates of $3.20 EPS for 2011 and $2.46 EPS for 2012.  Its dividend used to be far higher and has been $0.24 per quarter for about ten quarters in a row.  It is hard to know about the “when” but the “if” seems a shoe-in if it somehow is not merged.

Dominion Resources, Inc. (NYSE: D) recently traded at $48.61 and has a current dividend yield of almost 4.1%.  Its 52-week trading range is $36.98 to $49.07.  Thomson Reuters has estimates of $3.14 EPS for 2011 and $3.25 EPS for 2012.  The company has been in the habit of hiking payouts more than once a year if the last hike was a sign.  If no dividend hike is made in the fall, it could be announced late this year.  The current payout is $1.97 per year, leaving well more than $1.00 per share for operations ahead.

When asked if building new nuclear power plants was necessary or, even if necessary, too dangerous, 46% said the nukes were necessary and 48% said they were too dangerous. That response is very close to the response to the same question asked in 2009. As Gallup concludes, “A majority of Americans believe nuclear power plants in the U.S. are safe, and attitudes toward increasing their numbers do not appear to have changed in comparison with a previous measure 10 years ago.”

Nuclear power companies, though, can’t afford to wait for the endless reviews that the nuclear accident in Japan will set off. We’ve already seen some big acquisitions. France’s Areva (OTC: ARVCF) acquired US solar thermal company Ausra for $200 million last year, and US nuclear power leader Exelon Corp. (NYSE: EXC) bought the renewables division of Deere & Co. (NYSE: DE) for $900 million.

A report from PricewaterhouseCoopers (PwC) notes that the disaster in Japan could speed up similar acquisitions in the renewables sector. According to PwC, there were 530 mergers & acquisitions in the renewables sector in 2010, but the dollar value of the deals dropped from $48.8 billion in 2009 to $33.4 billion in 2010. Utility company acquisitions fell from $15.8 billion in 2009 to just $3 billion last year as a result of what PwC called “massive capital investment challenges.” The most attractive deals involved energy efficiency companies, which accounted for 91 of the transactions and $3.8 billion.

In the solar sector, the most interesting news comes from the semiconductor capital equipment vendors. Gartner Inc. (NYSE: IT) reports that semiconductor equipment sales grew 143% year-over-year in 2010, to reach a sales total of $41 billion.  Applied Materials Inc. (NASDAQ: AMAT) remained atop the sector with 15% market share and $6 billion in revenue. ASML Holding NV (NASDAQ: ASML) was the fastest growing company, with a revenue increase of 219%, moving it to second place in the standings with sales of $5.2 billion and 13% market share.

Solar PV wafer makers like MEMC Electronics Materials Inc. (NYSE: WFR) and SunPower Corp. (NASDAQ: SPWRA) have increased their wafer production capacity in 2010. Silicon availability remains an issue for most solar PV makers, so MEMC should profit either from higher prices and SunPower should benefit from having a captive supply. Silicon module makers like Suntech Power Holdings Co., Ltd. (NYSE: STP) and Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) could face tighter supplies and higher prices for wafers.

In wind energy, Xcel Energy Inc. (NYSE: XEL) has canceled a $400 million, 150-megawatt wind farm project in southeastern North Dakota. The project put a number of bird species at risk, and Xcel pulled the plug on its own under new federal regulations giving wind energy developers the ability to decide on the impact of a project. General Electric Co. (NYSE: GE) was slated to supply the 100 wind turbines for the project.

Finally, the three largest utilities in California have come very close to hitting their target of 20% of power from renewables (not including hydro) by 2010. The state’s public utilities commission said that Pacific Gas & Electric Co. (NYSE: PCG), Southern California Edison, and San Diego Gas & Electric Co. generated 17.9% of their power using renewable sources in 2010. Now they just have to meet California’s new requirement of 33% of electricity from renewable sources by 2020.

Paul Ausick

As Bloomberg News notes, the U.S. Department of Energy estimates that gas-fired electricity will climb 31 percent of U.S. power generation in 2010 from five years ago, while coal use will fall 6.5 percent.  This comes amid a continuing public relations blitz by advocates of coal, which advocates argue has a smaller environmental footprint than it used to thanks to the  $90 billion has invested in new technologies in recent years.  That message is not resonating with some.

General Electric Co.  (NYSE: GE)  CEO Jeff Immelt and Microsoft Corp.  (NASDAQ: MSFT) co-founder Bill Gates are among the business leaders calling for the U.S. government to triple its spending on clean energy research and development to $16 billion in the wake of the BP Plc. (NYSE: BP) disaster in the Gulf of Mexico.

Energy companies, though, cannot afford to wait for these green projects to come to fruition — if they ever do.   Demand for electricity, which increased by 2.4% in the 1990s, rose on average by 0.9 percent between 2000 and 2008, according to the Energy Information Administration.  Power use  likely did not change much since then as economic growth slowed because of the Great Recession while devices and appliances became more energy efficient.  That means that energy companies are more interested than ever in using the lowest cost fuel which causes the least amount of hassles.  Natural gas fits the bill.

Prices for the fuel are at a 11-month low and Duke Energy Corp. (NYSE: DUK) Chief Executive Jim Rogers told Bloomberg that the price and regulatory outlook may ” may prompt companies to defer coal projects and build plants that burn the cleaner fuel.”  He speaks from experience. Charlotte, North Carolina-based Duke is planning to phase out but its biggest coal-fired plants by 2015. Xcel Energy Inc. (NYSE: XEL), Colorado’s largest electric utility,  plans to spend $1.3 billion as part of a plan to convert coal plants to run on gas.  Even the Tennessee Valley Authority is on the bandwagon, recently announcing plans to idle 9 coal plants next year as it looks to replace “older and less-efficient coal-fired units with other sources of low-carbon and carbon-free power generation.”

Of course, coal will retain its spot as the dominant fuel for electricity generation for years to come, it generates about half the power generated in the U.S  For one thing, supplies are abundant. As the coal industry often likes to point out,  the U.S. is to coal what Saudi Arabia is to oil. America has more than 250 billion tons of recoverable coal reserves, equal to 800 billion barrels of oil, more than three times Saudi Arabia’s proven oil reserves.  Moreover, the industry continues to enjoy strong support on Capital Hill.  President Obama, who has proposed the cap-and-trade system the industry despises, tried to place by setting aside $3.4 billion from the stimulus bill for carbon capture and storage technology. Industry advocates such as West Virginia Sen. Jay Rockefeller (D) say the U.S. needs to spend about $25 billion.   Environmentalists say there is no proof that carbon capture will ever be financially feasible.  But like with ethanol, politics often trumps science and economics when it comes to coal

Though coal will remain king of the fuels, its crown has lost its luster.   Natural gas is the prince and nuclear power may be a duke or earl.   The other players in the energy kingdom are pretenders to the throne even if they are far greener than the lords of the castle.

–Jonathan Berr

Cisco Systems Inc. (NASDAQ: CSCO) Cut to Underperform at First Global.
Crucell NV (NASDAQ: CRXL) Cut to Neutral at UBS.
Illinois Tool Works Inc. (NYSE: ITW) Cut to Neutral at Goldman Sachs.
Las Vegas Sands Corp. (NYSE: LVS) Target Raised to $22 at Citigroup.
Netflix, Inc. (NASDAQ: NFLX) Cut to Underperform at Morgan Keegan.
Potash Corp. of Saskatchewan (NYSE: POT) Target raised to $170 at UBS; Traget Raised to $160 at CIBC; Credit Suisse raised Target to $150.
Portugal Telecom SA (NYSE: PT) Raised to Neutral at JPMorgan.
SuperMedia (NASDAQ: SUPM) Cut to Perform at Oppenheimer.
Weingarten Realty Investors Company (NYSE: WRI) Raised to Outperform at Wells Fargo.
Xcel Energy Inc. (NYSE: XEL) Started as Neutral at JPMorgan.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

ACE Limited (NYSE: ACE) approved all matters submitted to the ACE Limited 2010 Annual General Meeting.  This included a 6.5% increase to its quarterly dividend to $1.32 annually ($0.33 per quarter) from $1.24.  This give the insurer and reinsurer a yield of 2.5%.

The Clorox Company (NYSE: CLX) declared a quarterly dividend of $0.55 cents per share, which is up a nickel or by 10%.  The household and consumer products company now has an implied dividend yield of 3.4%.

Dr Pepper Snapple Group, Inc. (NYSE: DPS) is one we already predicted this year that would hike the payout.  It did, and handsomely.  The quarterly dividend of $0.25 per share is up 67% and “follows the company’s attainment of its target capital structure.”  The new implied dividend yield will be 2.6%.

Northrop Grumman Corporation (NYSE: NOC) declared a quarterly dividend of $0.47 per common share, a 9.3% from the previous $0.43 per share payout and is the seventh consecutive annual increase.  The implied dividend yield is now over 3.0%.

Safeway Inc. (NYSE: SWY) announced that its board declared a regular quarterly cash dividend and approved a 20% increase from $0.10 per share to $0.12 each quarter per share.  The grocery chain now yields 2.0%.

Xcel Energy Inc. (NYSE: XEL) raised its quarterly dividend from $0.245 per share per quarter to a rate of $0.2525 per share per quarter.  The electric utility’s old annual payout of $0.98 will now be $1.01, and that in turn generates a dividend yield of about 4.75%.

The hikes keep coming.  Stay tuned for more dividend hike predictions… followed by more dividend hikes.

JON C. OGG

We wanted to take a look at Select Sector SPDR Trust (NYSE: XLU), Southern Company (NYSE: SO), Dominion Resources, Inc. (NYSE: D), Duke Energy Corporation (NYSE: DUK), FPL Group, Inc. (NYSE: FPL), American Electric Power Company (NYSE: AEP), Entergy Corporation (NYSE: ETR), FirstEnergy Corporation (NYSE: FE), Edison International (NYSE: EIX), Progress Energy Inc. (NYSE: PGN), PP&L Corporation (NYSE: PPL), Xcel Energy Inc. (NYSE: XEL), DTE Energy Company (NYSE: DTE) and more.

There may actually be some time for them to shine in the near future. Despite the rally market of the last month, almost none of these stocks are within 5% of their 52-week highs.  We showed the dividend yields implied here, although as with all ‘yields’ there is often some distortion.  What we did not show was a P/E ratio because of the lagging effect of that, but we did show was the closing price for March 31 as the quarter closed and compared that to the 52-week trading range and compared it to the average consensus price target from Wall Street analysts per Thomson Reuters.

So why is this sector in the spotlight?  The dividend yields should be attractive enough.  Most are 4% and higher.  This offers defensive stock positioning, dividend yields, and the hope for some upside.  Of course, some are barren of a dividend due to issues and turnarounds. That keeps investors from having to go out to REITs and take on all the risks there associated with land values and trends.  Historically, utilities have been largely considered defensive stocks in hard times.  Morningstar noted in its quarterly wrap-up, “Utility stocks were hurt in the quarter by falling commodity and energy prices, bearish earnings outlooks as firms reported earnings, and a generally negative view of the future of electricity demand.”  The problem with that call is that energy demand is not dropping any longer and some larger companies are starting to increase their power usage again.

It is hard to tell if this will be enough of an order for analysts to juice up estimates at all.  As of today, the Fiscal DEC-2010 consensus estimates from Thomson Reuters are $0.84 EPS and $1.60 billion in revenues.  This has so far hardly been able to move the bar for MEMC.  Its stock is up 1.5% at $13.32, and the 52-week trading range is $11.32 to $21.36.

JON C. OGG

The new OUTPERFORM rated stocks are American Electric Power Co., Inc. (NYSE: AEP), Duke Energy Corporation (NYSE: DUK), Exelon Corporation (NYSE: EXC), PG&E Corp. (NYSE: PCG), Public Service Enterprise Group Inc. (NYSE: PEG), UNITIL Corporation (NYSE: UTL), Xcel Energy Inc. (NYSE: XEL).

The new more cautious PERFORM rated stocks are Consolidated Edison Inc. (NYSE: ED), FPL Group Inc. (NYSE: FPL), Pinnacle West Capital Corp. (NYSE: PNW), Progress Energy Inc. (NYSE: PGN), SCANA Corp. (NYSE: SCG), and Southern Company (NYSE: SO).

There are others that may not be included in the list today, but this is a brief summary from early this morning.  To show how the lot of utilities has performed, we looked at the iShares Dow Jones US Utilities (NYSE: IDU) ETF that tracks the sector. It closed at $67.25 yesterday, and its 52-week range is $53.15 to $100.98.

While the number of houses being foreclosed or are vacant has stayed high, that should start to abate over the next six months.  And if the economy’s green shoots start to turn into some small visible growth toward the end of the year or into next year, then the power consumption from major corporate and industrial clients should start to pick back up as well.

Many of these utilities have also underperformed in the ‘defensive stocks’ category.  This recession led to enough home foreclosures and power reduction from the industrial and manufacturing sector that it took out at least some of the stability or safe harbor characteristics of the past.  It looks like Oppenheimer expects this to improve at least some from here on out.

Jon C. Ogg

As of the end of 2008, Xcel provided electricity services to approximately 3,374,772 customers and natural gas services to approximately 1,868,916 customers. ARCA currently provides services for 19 other electric utility programs in the U.S. and Canada.

Appliance Recycling Centers is seeing a boost from the news, but the volume is still very thin.  Shares are up close to 20% at $2.00, and the 52-week trading range is $1.02 to $8.00.

JON C. OGG
MAY 26, 2009

NRG Energy, Inc. (NYSE:NRG) reported EPS of $0.70, beating estimates of $0.45 handily. Revenue of $1.658 billion also beat estimates of $1.16 billion. The company noted that it had spent $5 million fighting off the takeover bid from Exelon Corp. (NYSE:EXC), and $12 million on its pending acquisition of the Texas retail business of Reliant Energy Inc. (NYSE:RRI). Excluding mark-to-market gains of $271 million, NRG’s EBITDA was $477 million for the first quarter of 2009, compared with EBITDA of $525 in the same quarter last year.

Xcel Energy Inc. (NYSE:XEL) reported GAAP EPS of $0.38 on revenues of $2.7 billion. Analysts had been expecting EPS of $0.37 on revenues of $3.09 billion. The company’s electric margins improved from $885 million in the first quarter of 2008 to $962 million for the first quarter of 2009, primarily on the basis of lower purchased fuel and power costs. Retail rate increases contributed $45 million of the $77 million difference.

Dominion provided guidance of EPS of $0.61-$0.66 for the 2009 second quarter. Analysts had been estimating EPS of $0.59 for the second quarter.

NRG guided EBITDA for fiscal year 2009 to $2.175 billion, lower than analysts’ average estimates of $2.39 billion. The company noted “the very weak market” in the last portion of the first quarter.

Xcel reaffirmed previous EPS guidance of $1.45-$1.55 for the full fiscal year. Analysts are expecting EPS of $1.51.

Dominion shares are trading up about 2% in pre-market trading this morning. NRG shares are up nearly 5%, and Xcel is unchanged.

Paul Ausick
April 30, 2009