Incorporated in 1889 and headquartered in Spokane, Washington, Avista Corporation (AVA) is a diversified energy company engaged in the generation, transmission and distribution of energy in North America. Avista Utilities is an operating division of AVA that comprises of its regulated utility operations. It serves customers in Washington, Idaho and Oregon and contributes over 90% of earnings. In July 2014, AVA acquired Alaska Energy and Resources Company.
AVA is a Dividend Contender with a 12-yr streak of dividend increases. It pays quarterly dividends in March, June, September and December. Initial yield on cost is 3.72%. For a company in the Utilities sector, AVA has a solid 5-year dividend growth rate of 12.07%.
The stock has closely tracked the performance of the S&P over the past 10 years, though a recent spike pushed AVA ahead by about 18%. as is evident in the graph below. AVA has a 5-year Beta averaging about 0.68.
Analysis of AVA
My fair value estimate of AVA is $34.74, so I'm buying shares at a small discount of about 2%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.
AVA passes the following of my selection criteria:
- Earnings per share (EPS) percentage payout is less than 40% (62.87%)
- Debt to equity ratio is below 50% (105%)
- P/E to annual EPS growth (PEG) ratio is less than 2 (3.02)
- Price discount is at least 5% of fair value estimate (1.79%)
Other ratings for AVA
AVA repeated as the top candidate in the Utilities sector on my October dashboard of dividend growth candidates. Also, AVA was one of the two Utilities sector stocks in The Bloggers' Dividend Growth Portfolio, a portfolio compiled from the most popular dividend growth stocks held in 61 public portfolios of DGI bloggers in my blogroll. Since I'm currently underweight in utilities, AVA looks like a good addition here!
The company has an attractive mix of electricity generation resources, including 48% from renewable hydropower and 35% from natural gas. As such, it is one of the greenest utilities in the United States.
Based on a recent presentation, AVA is projecting earnings growth of 4% to 5% and expects dividend growth to keep pace with long-term earnings growth. In August, the company raised consolidated earnings guidance for fiscal year 2014 to a range of $3.00 to $3.20 per diluted share, expecting to be in the upper end of the range.
In 2014, AVA has made some strategic moves to reshape its business, including disposing of Ecova and acquiring Alaska Energy and Resources Company (AERC). A consequence of the Ecova disposition is the initiation of a stock buyback of up to 4 million shares. On the other hand, the AERC acquisition was accompanied by an issuance of 4.5 million new shares of common stock.
A recent report suggests that AVA may be talking to potential buyers, including Berkshire Hathaway Inc. One of my rejection criteria is to avoid purchasing shares of a company that will be acquired by or merged with another company. However, the report is speculative and I'm comfortable buying shares of AVA at this time.
Thanks for reading! Do you own shares of AVA? Which other Utilities stocks do you own?