International investments offer unheard of growth potential for U.S. investors. With domestic growth in the gutters, some utilities have headed overseas to send sales soaring. But riskier markets, erratic regulation, and currency fluctuations can kill a company's competitiveness. Let's take a look at four utilities to see if international adventures will send their dividend stocks booming – or busting.
Nobody expects the Spanish Inquisition
NextEra Energy (NEE 1.36%) is the nation's largest producer of renewable energy, but the sun isn't shining in Spain. In February, the Spanish government changed legislation that, up until that point, made renewable energy pricing cost effective for NextEra's 100 MW solar farm. With the facility nearing completion, NextEra is pushing ahead with construction – and taking a $300 million hit for Q1. The company reported earnings last week, reminding investors that NextEra has "removed from our financial expectations all contributions to operating earnings and cash flow from this project." The utility is hard at work suing 16 separate banks for "credit guarantee agreements," but investors shouldn't hold their breath for an optimistic outcome.
Get out of Guatemala
TECO Energy (NYSE: TE) has washed its hands of two Guatemala power stations and handling and port facilities. The utility first announced its decision to exit this operation last October, and recorded a final $300,000 million benefit this quarter, closing the books on this international investment. With a $227.5 million sale price, TECO considered its farewell a fair exchange. "Over the life of the investments, our Guatemalan power stations have provided good returns and cash that we've used to help strengthen TECO Energy's balance sheet and invest in our U.S. utilities," wrote President and CEO John Ramil in TECO's 2012 annual report.
When it doesn't rain, it pours
Duke Energy's (DUK 0.08%) international forays took a hit this quarter. Its international energy division pulled in Q1 adjusted net income of $97 million and, while that's just 15% of its regulated utility's earnings, is no small piece of the utility's profit pie. A drop in adjusted EPS earnings knocked 6% off investors' returns for the quarter, due primarily to lower rainfall and unfavorable exchange rates at its Brazil hydro operations, as well as lower volumes and pricing at its Saudi Arabian National Methanol Corporation.
Looking ahead, CFO Lynn Good assured investors that Duke will "continue to monitor the reservoir levels" to keep investors updated.
Heading home
Shares of AES (AES 2.58%) hit 52-week highs last week in anticipation of its May 9 Q1 earnings report. A glance at its investments shows a massive 27-country spread, offering unheard of geographic diversity.
Source: AES Earnings Presentation
But bigger isn't always better, and the dividend stock is minimizing its international exposure as it focuses on markets with less risk and high potential. In the past year, the utility has sold off $946 million in assets across nine countries to balance its books and free up funds for anticipated environmental costs.
Should dividend stocks stay domestic?
NextEra's sucking it up in Spain, TECO's out of international, Duke's international earnings are underwhelming, and we'll find out this week whether AES has found its international sweet spot.
For these four dividend stocks, international investments aren't adding up. But domestic isn't necessarily good, and international isn't always bad. More than anything else, it's important for utilities to focus on strengths, avoid "diworsification," and stay vigilant on the risk-reward balance.
