Infrastructure

6 Utilities With Solid Dividends and Strong Upside

In late March, U.S. utility company stocks followed just about every other publicly traded firm straight down. While share prices remain down for the year to date by around 15% to 27%, most of these stocks have recovered about half their March losses.

The $2.2 trillion CARES Act offered the firms some protection, boosting $3.3 billion set aside for the Low Income Home Energy Assistance Program (LIHEAP) by $900 million. Residential customers have to apply for the funds. In some states and cities, officials have declared a state of emergency that generally makes it illegal for a utility to turn off service for nonpayment.

The CARES Act includes a Paycheck Protection Program (PPP) for small businesses, and some of that funding can be used to pay utility bills as well. These actions probably have helped some but were hardly a bailout for the utilities.

Nonetheless, utility providers have taken some major punishment, and it will take some time for them to recover. We’ve screened out six (five electricity and natural gas companies and one water company) with a potential upside of around 10% or more to their recent price targets and to their 52-week highs. Data on electricity generation comes from the latest report from Ceres.

PPL Corp. (NYSE: PPL) is a Pennsylvania-based utility holding company that operates in three regulated segments: Pennsylvania, Kentucky and the United Kingdom. PPL generates electricity from coal, gas, hydropower and solar sources. The company is the 23rd largest electricity generator in the nation based on megawatt-hours (MWh) of generation in 2019, and 82% of its generation is coal-fired.

At a Friday closing price of $25.25, PPL’s implied upside based on a consensus price target of $29.83 is 18.14%. The stock’s 52-week trading range is $18.12 to $36.83, and Friday’s closing price was nearly 46% below the 52-week high. PPL pays an annual dividend of $1.66, for a yield of 6.57%. The company’s U.K. assets accounted for half of PPL’s pretax income in 2019.

Entergy Corp. (NYSE: ETR) is a Louisiana-based electricity provider that generates power from coal, oil, natural gas, nuclear, hydropower and solar sources. The company is the seventh-largest U.S. power generator, and it delivers electricity to 2.9 million customers in Arkansas, Louisiana, Mississippi and Texas. Last year, Entergy generated 10% of its electricity from coal, 41% from natural gas and 49% from nuclear power.

Shares closed Friday at $98.15, in a 52-week range of $75.19 to $135.55. Based on the consensus price target of $114.38, the implied upside is 16.54%, and the shares traded at 38.10% below the 52-week high. Entergy pays a dividend of $3.72 for a yield of 3.79%.

Exelon Corp. (NYSE: EXC) is a utility services holding company based in Chicago that operates in both the regulated and merchant power sectors in the United States and Canada. The company operates some 31 GW of generation capacity fueled by natural gas, nuclear energy, wind, solar and hydropower. Exelon is the country’s third-largest power company, and it uses nuclear power to generate 86% of its electricity.

The stock closed Friday at $37.39, in a 52-week range of $29.28 to $50.54. With a consensus price target of $47.13, the implied upside based on Friday’s final price is 26.05%. The stock closed more than 35% below its 52-week high. Exelon pays an annual dividend of $1.53, for a yield of 4.09%.

Southern Co. (NYSE: SO) generates, transmits and distributes electricity and natural gas. Southern is the fifth-largest electricity generator in the United States, and it generates 29% of its power in coal-fired plants and 50% in natural gas-fired plants.

Southern’s stock closed at $53.23 on Friday, in a 52-week range of $41.96 to $71.10. The stock’s price target of $60.73 implies a potential upside of 14.09%, and the 52-week high implies upside of 33.57%. The company pays a dividend of $2.56 for a yield of 4.81%.

Consolidated Edison Inc. (NYSE: ED) offers regulated electricity, natural gas and steam delivery to more than 4.6 million customers in and around New York City. Based on total generation of 7.6 million MWh, ConEd is the 88th largest power producer in the United States. It generates 66% of its electricity from renewable sources, with most of the rest generated by natural gas.

On Friday, the stock closed at $72.48, in a 52-week range of $62.03 to $95.10. ConEd’s price target is $79.07, implying a potential upside of 9.09%. Comparing the price target to the 52-week high, the stock’s potential upside is 31.21%. The company pays a dividend of $3.06, yielding 4.22%.

Essential Utilities Inc. (NYSE: WTRG) provides water or wastewater services in the United States. The firm claims approximately 3 million customers in eight states and previously was known as Aqua America before February.

Shares closed at $43.28 on Friday, in a 52-week range of $30.40 to $54.52. Essential’s consensus price target is $48.20, implying a potential upside of 11.37% from the target and 25.97% above the 52-week high. The company pays an annual dividend of $0.94, for a yield of 2.20%.