This Dividend Stock Just Chose Natural Gas. Duh.

Atlantic Power (NYSE: AT  ) just sold off a transmission project to raise cash and funnel funds toward natural gas and renewable generation. "Focusing on ____" is a common theme among utilities as each carves out its own corporate corner, but a bad niche could turn into a bad itch on your portfolio's profits. Let's take a look at five utilities' new-found niches and decide whether their focus will work for your wallet.

Transmission omission
On Monday, Atlantic Power announced that it will pass off its Path 15 transmission project to Duke Energy (NYSE: DUK  ) and American Transmission for $193 million in cash and debt handoffs. The deal is expected to close in Q2 2012 and will help reduce the utility's $2 billion debt load by around 6.5%.

Atlantic CEO Barry Welch noted that while the project enjoyed "relatively stable cash flow," his company will be carving out its new niche in renewable and natural gas generation. In 2012, Path 15 revenue clocked in at $31 million, with net income of $5.1 million.

If Welch calculates that consolidation will save Atlantic more than $5 million a year, then the move makes sense. The company already has a major focus on natural gas, and its wind portfolio recently mushroomed with Atlantic's Ridgeline Energy acquisition. But if the sale is just a quick way to balance books, I'd rather Atlantic kick around in the red to make its return to black more sustainable. Either way, this utility needs all the strategy it can get with a slashed dividend and abysmal Q4 earnings.

Source: Atlantic Power 10-K. 

H2O is a no-go
NextEra Energy
(NYSE: NEE  ) , the nation's largest renewable-energy producer, kicked out its last hydro assets last week. CEO Armando Pimentel cited resource concentration on greater growth as the primary reason for his company's decision. Hydropower plays an important part in most major utilities' generation portfolios, but it accounted for just 2% of NextEra's generation capacity in 2012. With limited prospects for new hydro facilities and tax credits flowing in for wind and solar, NextEra's decision gets my stamp of approval.

Source: NextEra 10-K 

Regulation over generation
Ameren
(NYSE: AEE  ) stumbled this quarter as the company reorganizes itself to focus on its regulated division. The utility will exit its generation business in 2013 and take a $1.5 billion to $2 billion non-cash impairment charge to clear its books. While other utilities have poured money into massive modernization projects, Ameren will focus funds on its 2.4 million customers across Missouri and Illinois.

In direct contrast to Atlantic, the company is also investing $2.2 billion over the next four years to upgrade its transmission division. These funds will help keep costs low for its regulated division and should provide steadier income than its aging generation fleet could offer.

Nuclear for the win?
NextEra may be the biggest renewable player around, but Exelon (NYSE: EXC  ) offers the most straightforward niche in town: nuclear. There are many compelling arguments for nuclear, not the least among them an opportunity to be contrarian with this relatively cheap fuel.

Source: Author; data from 10-K. 

The company recently received a dividend haircut, clearing up capital for nuclear uprates, maintenance, and renewables expansion.

Source: Exelon earnings-call slides. 

Its stock has been battered as natural gas prices have nipped nuclear's, and a dividend cut never makes any friends with income investors. But if Exelon can make the most of its recent Constellation Energy merger and keep costs competitive for nuclear, this utility could be on the verge of a 2013 comeback.

Which niche is nicest?
Utilities face the same basic question we investors ask: How can we maximize return while protecting ourselves from risk? Top-line sales can't be counted on to boost earnings, and utilities everywhere are scrambling to find the best answer for themselves.

Atlantic's handing off transmission to Duke, NextEra's kicking out hydro, Ameren's investing in regulation, and Exelon is adding on nuclear. Regulation and energy prices will make or break each of these decisions, and investors will need to watch closely as their stocks stick to their guns on various energy sources and business models.

As the nation moves increasingly toward clean energy, Exelon's nuclear niche is perfectly positioned for profit. Combine this strength with an increased focus on renewable energy, and Exelon's recent merger with Constellation places Exelon and its newly sustainable dividend on a short list of top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.


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