Saturday, December 7, 2013

Recent Buy: NU


Dec 4, 2013: Bought 60 shares of NU at $41.02 per share.

Northeast Utilities (NU) is the parent company of Northeast Utilities system. Incorporated in 1927, NU is engaged in delivering energy through wholly owned subsidiaries. NU serves more than 3.6 million electric and natural gas customers in Connecticut, Massachusetts, and New Hampshire.

NU is a Dividend Contender with a 15-year streak of dividend increases. It pays quarterly dividends of $0.3675 per share in March, June, September and December. Starting Yield on Cost is 3.58%.

NU outpaced the S&P 500 over the last 10 years, growing 111% compared with the 71% growth of the S&P 500:


NU's earnings per share shows a general uptrend, while dividend growth is steady:


Analysis of NU


Fair value estimates for NU range from $36.00 (MorningStar) to $45.00 (Zacks Investment Research), with a mean of $37.87. Compared with the mean, NU trades at a premium of about 5%.

The following table provides some key statistics for NU:
The sum of NU's dividend yield and its 5-yr dividend growth rate is 14.87%, safely above the 12% required by the Chowder Dividend Rule. Additionally, NU passes the following of my selection criteria:
  • Dividend payout ratio is 59.27% (below 65%)
  • 7-year weighted average dividend growth rate is 11.65% (at least 7%)
  • Estimated 5-year total payback percentage is 17.10% (at least 7%)
NU's trailing twelve month (TTM) P/E ratio of 16.56 exceeds my target of 16%, but just barely so, and the forward P/E looks good at 15.09%.

At 99%, NU's Debt to Equity ratio is too high, exceeding my 50% target almost two-to-one. 

NU appears at the bottom of my December dashboard as a 4-star stock: (*******)

Other ratings for NU


 Zacks Rating  3 Hold
 S&P Capital IQ's Stock Report  (*****) Buy
 MorningStar Rating  (*****)
 The Motley Fool's CAPS Rating  (*****)
 Thomson Reuters's StockReport+  (6/10) Neutral 

Concluding Remarks


NU has a solid dividend yield and strong dividend growth. I like the stock for other reasons, too. NU is growing through infrastructure expansion, increasing transmission capacity to help meet the rise in customer demand. It also is growing through acquisitions, most recently by merging with NSTAR. In the first six months of 2013, NU's cash flow increased 140% compared with the year-ago period. This solid cash generation capacity should enable NU to continue its growth plans and regular, incremental dividend payments.

Like most players in this sector, NU expects to incur substantial costs related to compliance with existing and new environmental laws. Also, energy providers face operational risks, including failure of equipment, accidents, labor disputes, and severe weather conditions. Associated costs could exceed NU's estimated expenses and insurance coverage and impact its financial situation.

As I stated in my previous post, I'm switching my focus to diversification this month. NU is my first purchase in the Utilities sector. I'm paying a 5% premium for NU for the sake of diversification.

60 shares of NU represent $88.20 of expected annual dividend income. This is my 21st dividend stock purchase for DivGro. It increases DivGro's projected annual dividend income to $2,679.22.

Full Disclosure: Long NU

4 comments :

  1. I'm interested in bumping up my utility holdings and will have to take a look at NU, nice streak there. Sometimes it's hard to distinguish between utility companies (at least for me), however I have been looking at WEC, WGL, and AWR as of late. Some additional food for thought here. Thanks!

    ReplyDelete
    Replies
    1. Yes, utilities are tricky. Thanks for the other tickers -- I'll take a look. NU is my first utility holding, and I can do with at least one more. Good luck!

      Delete
  2. This company is now called Eversource Energy (NYSE:ES). Just a heads-up for those searching for it on other websites.

    ReplyDelete
    Replies
    1. Indeed -- thanks for commenting and noting the name change. My portfolio and watch list have been updated, but not this post.

      Cheers!

      Delete

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