Utility companies are usually seen as stable, boring investments. Government regulations cap a corporation's profits, making it difficult for utilities to grow their top lines. But there's one easy way for strategically located utilities to dramatically boost their revenue. Keep reading for the secret to growth in the utility sector, as well as specific companies that are poised to profit from this trend.
Utility companies generate and/or transport electricity to our homes and businesses. Since electricity is seen as a public necessity, government regulations make sure utilities can't charge exorbitant prices that would leave average Americans penniless or powerless.
There's really only one way for a company to grow revenue: Increase its customer base. Corporations aren't allowed to charge a customer $10 instead of $5, but they can provide $5 of power for two customers and enjoy greater returns from the increased synergistic value. Since nearly every person in the U.S. uses electricity, population growth trends provide a glimpse of where tomorrow's customers will be using the most power. Let's take a look.
Deep in the heart of Texas
Every year, the U.S. Census Bureau publishes population estimates for each state. This year's top five growth states are Texas, California, Florida, Georgia, and North Carolina. These states boast an average 1.2% increase and welcomed more than 1 million new citizens into their borders between 2010 and 2011. Five states added less than 1,000: West Virginia, Maine, Vermont, Michigan, and Rhode Island.
Perhaps that's why it sports an average dividend of 4.7%, something investors will have to consider when looking to Duke for growth.
Both NextEra Energy's
Utility investors might be turned off by the company's below-average 3.7% dividend yield, but NextEra offers long-term growth potential as it reinvests in renewable-energy sources such as wind and solar.
The 2011 U.K. census reported the kingdom's largest population increase ever. With a 7% growth rate, the U.K. grew by 3.7 million people, compared with the United States' 2.2 million additions. Business is booming across the pond, and National Grid could reap massive returns. Plus, its 7.4% dividend is an attractive enticement for any income investor.
As a final wild card, investors can look to the geographic disconnect between energy sources and energy users as an investment opportunity in and of itself. As my colleague Sarah Wright discusses, smart grids are a way for the U.S. to better manage the supply and demand of electricity nationwide. ABB
Shock your stocks
Population trends provide investors with a unique edge over backward-looking analysts. Incorporating these details into your portfolio picks will allow you to focus your dividend plays on utilities with better-than-average growth opportunities, increasing your returns for years to come.
The utility sector isn't the only one sporting huge dividends with growth potential. The Motley Fool has prepared a special free report outlining nine rock-solid dividend stocks to steadily boost your portfolio's profits. It's as free as this article, so be sure to grab your free copy today.
Fool contributor Justin Loiseau has no material interest in any companies mentioned in this article. You can follow Justin on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo. Motley Fool newsletter services have recommended buying shares of Exelon and National Grid and creating a write covered straddle position in Exelon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.