Don't Fear the Megalopolis

It may sound like a B-movie monster, but for our investing purposes today, "megalopolis" describes the urban region along the east coast of the U.S., spanning from Washington, D.C., in the south to Boston in the north. This region, linked primarily by Interstate 95, is home to more than 50 million people and produces 20% of U.S. GDP.

How can you take advantage of this as an investor? Supporting all those people and producing all that GDP requires a massive amount of electricity. I have identified some of the larger utilities that provide services to the region, and will talk about why they could shock some life into your income portfolio.

Company

Recent Price

Annual Dividend

Dividend Yield

Dominion Resources (NYSE: D  ) $50.93 $1.97 3.9%
Consolidated Edison (NYSE: ED  ) $56.60 $2.40 4.2%
Public Service Enterprise Group (NYSE: PEG  ) $34.09 $1.37 4.0%
Northeast Utilities (NYSE: NU  ) $34.50 $1.10 3.2%
National Grid (NYSE: NGG  ) $49.39 $2.92 5.9%
Exelon (NYSE: EXC  ) $42.91 $2.10 4.9%

Source: FinViz.com.

Not all about yield
A high dividend yield is good, but it's important to dig a little deeper and examine whether a company's dividend will be sustainable in the long run. Also, if a company with a smaller yield has been increasing its yield, it may turn out to be a better play in the long run than a company with a larger yield that is increasing more slowly.

Furthermore, a company's payout ratio is important because it indicates how much room the company has to grow its dividend. The lower the ratio, the more money the company has to spend on other facets of the business, like funding expansion or buying back shares. A higher ratio implies that the company has less room for dividend growth, and may have to reduce the dividend if times get rough.

Company

5-Year Avg. 
Annual Dividend Growth Rate

Payout Ratio

Dominion Resources 6.8% 65%
Consolidated Edison 8.4% 66%
Public Service Enterprise Group 4.2% 43%
Northeast Utility 8.3% 45%
National Grid 36.1% 138%
Exelon 6.1% 53%

Source: Motley Fool CAPS.

Start in the north
Northeast Utilities provides electricity and natural gas to much of the Northeast. National Grid is the primary provider of electricity and natural gas to Boston and Rhode Island, but also has some exposure in New York.

The New York metro area is the most populous region in the country, so one would expect its utility provider to be among the largest. Consolidated Edison fits the bill as the primary provider of electricity and natural gas in the region.

The middle
Public Service Enterprise Group has been serving New Jersey since 1903, and has been consistently ranked one of the most reliable electric utilities. It is also in the midst of installing solar panels on 200,000 utility poles in its service territory in an attempt to rely less on nonrenewable energy sources.

Exelon provides electricity to Philadelphia and surrounding areas. A planned merger with regional provider Constellation Energy would expand its service footprint into Maryland. Beyond service within the megalopolis, Exelon also provides electricity to parts of Chicago.

In the South
Dominion Resources is not exclusively an electricity provider, but it does provide electricity to the southern end of the megalopolis. Its natural gas contracts in states including West Virginia, Pennsylvania, and Ohio make it an intriguing choice.

Also providing electricity to much of Virginia is Pepco Holdings (NYSE: POM  ) . By providing power to Washington, D.C., it literally powers much of our government. It is a bit smaller than the other companies mentioned here, but still worth a look.

People need power
When looking at utilities, one thing to consider is the number of potential customers. The Northeast megalopolis definitely has the customers, making many of the companies discussed here a good option if you are looking for exposure in utilities. You can find other dividend-paying utilities here. Or you can keep an eye on companies by adding them to your personalized stock watchlist.

Fool contributor Robert Eberhard does not own shares in any companies mentioned here. Follow him on Twitter @GuruEbby. Motley Fool newsletter services have recommended buying shares of National Grid, Exelon, and Dominion Resources. Motley Fool newsletter services have recommended creating a write covered strangle position in Exelon. 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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