January 27, 2013 in Business

Utility stocks offer promise, dependability for your portfolio

Universal Uclick
 
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.

Get stories like this in a free daily email


Please keep it civil. Don't post comments that are obscene, defamatory, threatening, off-topic, an infringement of copyright or an invasion of privacy. Read our forum standards and community guidelines.

You must be logged in to post comments. Please log in here or click the comment box below for options.

comments powered by Disqus