Top 15 Utilities Portfolio Review

2/10/2014


Our Top 15 Utilities have outperformed their industry benchmark by a wide margin since the portfolio's inception at the start of 2007.

We designed this portfolio to accomplish three goals:

• Provide investors with a fairly diversified slice of the utility sector, as opposed to selecting just one or two utilities to purchase.

• Pay a yield comparable to the sector average.

• Offer profit-growth potential beyond that of the typical utility.

Past performance (the Top 15 Utilities portfolio has outgained its benchmark in each of the last six calendar years) suggests our strategy is paying off. Investors should spread the money allocated to utilities into equal-dollar positions in
each of the following 15 companies, including a new addition to the list, presented at the end of this story:

AGL Resources ($47; GAS) serves 4.4 million customers in six states. Early this month, AGL raised its quarterly per-share dividend 4% to $0.49.


Alliant Energy ($51; LNT), slated to declare December-quarter profits Feb. 25, has topped the consensus earnings estimate by at least 6% in each of the last four quarters.


AmeriGas ($43; APU) is one of two master limited partnerships (MLPs) in the Top 15 Utilities portfolio. The propane distributor earned $1.14 per share in the December quarter, up 23%.


Atmos Energy ($47; ATO) earned $0.88 per share in the December quarter, up 19% and $0.02 above the consensus. The company projects 5% to 9% growth in 2014.


CMS Energy ($27; CMS) rallied after declaring December-quarter earnings of $0.37 per share, up 48% and in line with the consensus.


DTE Energy ($67; DTE) operates electric (2.1 million customers) and natural-gas (1.7 million) utilities in the troubled region of southeastern Michigan. Sales rose at least 8% in four consecutive quarters.


Great Plains Energy ($24; GXP) supplies electricity to more than 800,000 customers in western Missouri and Eastern Kansas. The company targets annual dividend growth of 4% to 6% through 2016.


Electric utility Idacorp's ($51; IDA) net income rose in five consecutive calendar years. If December-quarter numbers come in as expected (per-share-profit growth of 48%), 2013 will mark the sixth.


New Jersey Resources ($44; NJR) provides natural gas to nearly 500,000 customers from the Gulf Coast through New England, as well as some in Canada.


PNM Resources ($24; PNM) earns a 12-Factor Sector score of 100, ranking it tops in the utility sector. It also earns solid scores of 73 Overall and 78 in Reranked Overall, another sector-specific score.


Southwest Gas ($52; SWX) is one of only two stocks in the Top 15 Utilities portfolio to rank at least 90 for both sector-specific Quadrix scores. The consensus projects profit growth of 5% this year.


Sunoco Logistics ($77; SXL), an MLP that operates pipelines and storage facilities, has returned 10% over the last three months, tops in the portfolio. The MLP has raised its dividend in each of the last four quarters.


UGI ($42; UGI) sells propane (65% of income in 2013) and operates a gas utility (24%) and a pipeline and marketing unit (11%). The company has authorized the repurchase of up to 10 million shares (9% of shares outstanding) over the next four years.


At 14 times trailing earnings, Westar Energy ($33; WR) is one of the few utilities to trade at a discount to both its industry median (P/E of 15) and its own three-year average (15).

Portfolio change

Avista ($28; AVA), which supplies electricity to 362,000 customers and gas to 323,000 in the Pacific Northwest, is replacing Integrys Energy ($53; TEG), the portfolio's worst performer over the last six months.

TOP 15 UTILITIES
--- Quadrix Scores ---
Company (Price; Ticker)
Div.
Yield
(%)
Value
Overall
AGL Resources ($47; GAS)
4.2
77
78
Alliant ($51; LNT)
4.0
73
56
AmeriGas ($43; APU)
7.8
74
52
Atmos Energy ($47; ATO)
3.2
62
75
Avista ($28; AVA)
4.3
75
64
CMS Energy ($27; CMS)
4.0
75
61
DTE Energy ($67; DTE)
3.9
74
56
Great Plains ($24; GXP)
3.8
77
67
Idacorp ($51; IDA)
3.4
75
79
New Jersey Res. ($44; NJR)
3.8
78
63
PNM Resources ($24; PNM)
3.1
74
73
Southwest Gas ($52; SWX)
2.5
74
83
Sunoco Logistics ($77; SXL)
3.5
43
46
UGI ($42; UGI)
2.7
81
89
Westar Energy ($33; WR)
4.2
81
82
Portfolio average
3.9
73
68
Sector average
3.6
64
55
Note: Quadrix scores are percentile ranks, with 100 the best.

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