TXU's Turnaround

Editor's note: The prior version of this article had TXU's new dividend yield wrong. The correct yield with the new dividend is 3.75%. We apologize for and regret the error.

Talk about a successful makeover. Two years ago TXU (NYSE: TXU  ) looked downright ugly, but a few nips and tucks later, the company is now the belle of the utilities ball. Asset sales, debt retirement, and corporate shake-ups appear to be doing the trick. TXU's latest announcements have me believing that the Texas power utility can look even better.

It's hard not to like the results so far. TXU knocked the socks off Wall Street estimates, delivering Q3 net income of $662 million. That's up 69% from $392 million a year ago. Over the year TXU wiped out about $4 billion in losses at its European subsidiary and gained nearly $6 billion through sales of its telecom, natural gas, and Australian utility holdings. The strategy of "rationalizing, restructuring and restoring profitability" is paying off in spades.

TXU is shedding pounds of debt. Proceeds from its sell-offs -- including the recent $1.9 billion sale of its TXU Gas subsidiary to Atmos Energy (NYSE: ATO  ) -- eliminate $6 billion in debt.

Few things signal strong prospects more than a dividend hike. This morning TXU announced that it's raising its quarterly dividend to $0.5625, a big jump from $0.16. At today's price, the new dividend offers a hefty dividend yield of 3.75% that looks solid -- TXU management plans to up the dividend by roughly 5% in the coming years. If that kind of dividend policy doesn't convince you about management's confidence in the future, then consider TXU's decision to buy back 50 million of its shares.

Back in May, I cautioned that TXU's momentum might be running low. Sorry, I was wrong. TXU has worked hard to get rid of unsightly costs and a saggy debt load and is now sitting pretty. If you are looking at utilities, this turnaround story is still one to consider.

Curious about other companies that will pay you to own them? Take a free, no-obligation trial today toMotley Fool Income Investor.

Fool contributorBen McClure hails from the Great White North. Ben doesn't own any shares mentioned here.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 502838, ~/Articles/ArticleHandler.aspx, 4/20/2014 10:15:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement