Saturday, September 11, 2010

Utilising Utilities

Don't you just love utility stocks? A big fat dividend, steady growth and an economic downturn has little effect on them.

The downside is that growth is slow and only achieved through massive capital investment. But their defensive nature and high yield means that they deserve a place in most portfolios.

Unbelievably my main portfolio does not yet contain a utility. Having recently cashed in on Genzyme's buyout speculation I am in a position to buy into one. But which one to choose?

One problem is that foreign companies keep buying British utilities so the choice of companies listed on the LSE is slightly limited. However there are two promising possibilities I am going to investigate:

Scottish and Southern Energy (SSE)

SSE is one of the leading energy companies in the UK and the second largest energy supplier. It is the UK's largest generator from renewable sources. Here are the basics:

Market Cap: £10.8 Billion
Trailing PE: 10
Dividend yield: 6%
Growth: ~3%

Typically of a utility SSE has a reasonable PE, a nice yield and low growth.

Now a quick summary of the other contender:

National Grid

National Grid is an electricity and gas company which operates the electrical grid in the UK and North East USA. Here are the fundamentals:

Market Cap: £20 Billion
Trailing PE: 11
Dividend yield: 6%
Growth: ~7%

So National Grid is more expensive but is growing faster. Both companies have a great dividend yield.

Next up - a more detailed look at SSE.