The utilities sector is one of relative stability, offering fairly safe investments even in a time of recession. Demand for electricity or water doesn't look to decrease significantly at any point in the near future and, while it's not a sexy investment, buying up utility stocks can be a solid way to bolster a portfolio for the risk-averse investor.
However, while the chance for massive jumps in share price are very unlikely for most large utilities, the sector tends to make up for this with strong, reliable dividends that can create a passive income stream with fairly little risk involved. So, here are the sector's five highest yields among utilities with a market cap exceeding $300 million.
Inergy claims to be the fourth largest propane retailer in the United States. The Kansas City, MO based company boasts some 800,000 customers in 33 states with 340 retail locations. In a lot of ways, Inergy's stock currently resembles a sinking ship at the moment. At the end of January the company reported a net loss for Q4 of 2011 as well as a 21 percent decline in EBITDA.
"We faced a challenging operating environment in the quarter particularly impacting our propane operations," said John Sherman, President and CEO of Inergy.
Well, Sherman is most likely also concerned about the company's mounting debt (debt/equity of 1.44), low margins (operating margin under 3 percent with gross and profit margins in the negative), and a steadily declining EPS. What on earth would make a person invest in a stock like that? Try a 15.5 percent dividend yield. For all the trouble swirling about the company, the dividend is big enough that some might see it as a worthwhile investment regardless. What's more, if Inergy gets its house in order and moves back into profitability, it should provide a double-whammy of returns for shareholders.
Niska Gas Storage (NKA)
The Calgary, AB based Niska Gas Storage is the largest independent owner and operator of gas storage facilities in North America. Gas storage is used to stow away natural gas during times of low demand to wait until periods of higher demand. Niska's carrying some debt, which is typical for a utility company, and also shows some troubling numbers in its margins, but it has a strong P/B ratio of 0.92 and a P/FCF under 6.5. Perhaps more importantly, though, Niska offers a dividend yield of 15.1 percent.
Suburban Propane Partners (SPH)
Suburban Propane Partners provides its customers with a number of energy needs, specializing in the distribution of propane, fuel oil, and refined fuels. The company also markets natural gas and electricity services in deregulated markets. Headquartered in Whippany, NJ, Suburban Propane has had a rough year, losing a quarter of its share value since last February. However, Suburban helped make it up to shareholders by offering a solid dividend yield of 8.00 percent. Suburban Propane has a PEG of over 6.5 and has watched sales contract over the last five years, but the strong dividend might still make this an attractive stock for some.
Atlantic Power Corp (AT)
Atlantic Power, based out of Boston, MA, operates independent power plants that supply power to British Columbia, Ontario, California, Colorado, Illinois, New Jersey, New York, North Carolina and Washington State. Atlantic Power has a P/E ratio of just 5.43 and a P/S of 0.58, giving investors a reason to smile other than the healthy 7.95 percent yield that's paid out. However, darker clouds may be on the horizon as Atlantic projects EPS contraction over the next five years.
Plains All American Natural Gas Storage (PNG)
PAA Gas Storage, like Niska, is in the business of operating storage facilities for keeping natural gas while waiting for prices to increase. PAA has three storage facilities in Louisiana, Mississippi, and Michigan with a combined capacity of 50 billion cubic feet per day. The Houston, TX-based company has had robust EPS growth in recent history and looks to continue growing into the future. However, investors will most likely be most-attracted to the company's 7.75 percent dividend yield.
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