Turning a Light on Utilities

Electric utilities are never going to be a leader in stock market performance during an economic recovery, but after a rough performance in 2010, this year is shaping up better for the stocks. Two utilities in particular, FirstEnergy (NYSE: FE  ) and National Grid (NYSE: NGG  ) , are ready to provide a little power to shareholders this year.

Last week, Northeast power company FirstEnergy reported normalized non-GAAP earnings that fell to $0.71 per share, from $0.77 last year. But demand is improving, and higher fuel expenses and accelerated maintenance spending made earnings appear worse than they are.

The regulated business hasn't been able to pass on increased energy costs to customers, but conditions are improving at FirstEnergy's unregulated business. In the quarter, the group swung from a $104 million operating loss last year to $162 million in operating profit this year.

FirstEnergy has also used the slow economic recovery to prepare for the future by upgrading equipment. Fifteen cents per share of planned upgrades were moved forward into 2010, allowing the company to focus on its pending merger with Allegheny Energy (NYSE: ATI  ) .

Conditions are improving at competitors as well. Motley Fool Income Investor pick National Grid has been able to ride a diverse business in both the United Kingdom and the U.S. to steady operating profit growth throughout the recession. A dividend payout of 7% gives investors a nice cash flow from a rock-solid business. As the economy picks up, National Grid is only improving and has already experienced 31% operating profit growth in the first half of the fiscal year.

As fellow Fool Dan Dzombak recently pointed out, strong dividend stocks like utilities can create a portfolio primed to beat the market. Earnings may not knock your socks off every quarter, but slow and steady usually wins the race.

Interested in reading more about FirstEnergy? Click here to add it to the Fool's My Watchlist feature. Click here to add National Grid to My Watchlist, which will find all of our Foolish analysis on the stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

National Grid is a Motley Fool Income Investor pick. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Related Tickers

8/29/2014 4:00 PM
ATI $42.17 Up +0.14 +0.33%
Allegheny Technolo… CAPS Rating: ***
FE $34.24 Up +0.25 +0.74%
FirstEnergy Corp. CAPS Rating: ***
NGG $74.74 Up +0.10 +0.13%
National Grid CAPS Rating: *****

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