January 27, 2013 in Business

Utility stocks offer promise, dependability for your portfolio

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Associated Press photo

A farmer plows a field near wind turbines owned by Exelon Corp. outside Mountain Home, Idaho, in 2012.
(Full-size photo)

Utility companies are great portfolio stabilizers and income generators. Here are four to consider:

• Exelon (NYSE: EXC), recently with a dividend yield near 7 percent and annual revenue near $33 billion, is one of America’s largest energy producers. It’s also America’s largest nuclear-energy company. With natural gas prices low lately, nuclear power has been losing ground, but we may also see a push for nuclear reactor subsidies in an attempt to rid the U.S. of its reliance on foreign oil. (Motley Fool newsletters have recommended Exelon.)

• American Water Works (NYSE: AWK), founded in 1886, recently sported a dividend yield of 2.6 percent. It’s the largest publicly traded water and wastewater utility company in the United States, relying on everything from cost-cutting to IT improvements to increase its profits. It’s begun offering services to (controversial) gas-fracking operations, which might boost profits.

• Southwest Gas (NYSE: SWX), recently yielding 2.7 percent, has upped its dividend by an annual average of about 8 percent over the past five years. It offers natural f\gas service to the southwestern U.S.

• National Grid (NYSE: NGG), recently yielding more than 5 percent, serves up electricity to the northeastern U.S. and the United Kingdom. Thus, it offers geographic diversification. It also has been investing in alternative energies.

Ask the Fool

Q: When a company is acquired by another, does its stock price always go up? – K.G., Dalton, Ga.

A: It depends. If the firm’s market value is around $10 billion and it’s bought for $15 billion, the stock price may jump on the news. When a company is very desirable, perhaps due to its products or growth prospects, a buyer may have to outbid other interested companies. But if it’s struggling, it might get scooped up for a song, when its price is depressed.

Meanwhile, if investors think that the acquiring company has struck a good deal, its own price might also rise. But if they think it overpaid or won’t see a good return on the investment, its price can drop.


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