6 Undervalued Utilities With Strong Dividends and Upside Potential

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FirstEnergy

This higher yielding stock also may have among the best total return potentials. FirstEnergy Corp. (NYSE: FE) is a conglomerate of 10 electric utilities, including Ohio Edison, Cleveland Electric Illuminating, Pennsylvania Power, Toledo Edison, Jersey Central Power & Light, Metropolitan Edison and Pennsylvania Electric. FirstEnergy owns merchant generating plants totaling over approximately 18,000 megawatts of capacity.

The stock is down slightly this year, and the higher 4.82% dividend could draw investor interest. Barclays has the stock rated Buy with a $37 price target, while the consensus target is posted at $33.59. The shares closed trading most recently at $29.86.

PG&E

This is a top utility that investors can still feel super-comfortable owning now. PG&E Corp. (NYSE: PCG) is one of the largest combined natural gas and electric utilities in the United States. Based in San Francisco, with more than 20,000 employees, the company delivers energy to nearly 16 million people in northern and central California. The company operates 141,215 circuit miles of electric distribution lines, 18,616 circuit miles of interconnected transmission lines, 42,141 miles of natural gas distribution pipelines and 6,438 miles of gas transportation pipelines. It operates generation facilities with energy sources such as nuclear, hydroelectric, fossil fuel-fired and photovoltaic.

PG&E announced a clean fuel rebate of $500 that started in the spring. The rebate is a bonus for using electricity as a clean transportation fuel, and eligible electric vehicle owners can receive one rebate per owned or leased electric vehicle.

Its shares are up a solid 12% this year. PG&E shareholders are paid a 3.15% dividend. The RBC price target for the stock, which is rated Buy, is $70, and the consensus number is $70.50. Shares closed trading most recently at $67.46.

Southern Company

This large cap leader makes sense for very conservative accounts. The Southern Company (NYSE: SO) has four utility subsidiaries: Alabama Power, Georgia Power, Gulf Power (Florida) and Mississippi Power. Georgia and Alabama are the most significant and represent about 80% of earnings. The utility businesses comprise 35,000 megawatts of power generation and 4.4 million customers. The nonregulated arm, Southern Power, owns and operates 7,600 megawatts of gas-fired power plants with the vast majority of the output signed up under long-term power contracts.

The shares are almost totally flat for the year, and this is another company offering investors a tidy entry point. Shareholders receive a big 4.7% dividend. Barclays has a Buy rating on the shares and a $55 price target, while the consensus target is $51.22. The shares closed most recently at $49.47.

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While the days of the huge capital gains in the utility stocks may be over, the opportunity for solid upside potential and safe dividends is very much in focus now. The Treasury yield curve is flattening and that could mean a recession in a year or so. For conservative accounts, and those wary of a bloated stock market, all these companies look like a good place to put money now.