GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Falling Dividends: Utilities Next? Constellation Energy, Ameren, Great and Plains Energy

Ryan Vanzo

Ryan Vanzo

1 followers
It's no secret, many companies are looking to strengthen their balance sheet and conserve cash. Most companies have been reluctant to cut their dividend payouts but recently, many have folded to the pressure and have cut severely.

With AAA companies slashing their payouts (GE), safe and reliable dividends have become scarce. Long known to be a steady source of dividends, the utilities have recently run into a myriad of troubles, causing some to doubt their previously rock solid high-yields.

Some utility companies have recently lowered their dividends including Constellation Energy (CEG), Ameren (AEE), and Great Plains Energy (GXP). A troubling thing is that many of the reasons for these cuts aren't company specific. Deteriorating demand and a tough credit market will inevitably affect even the strongest firms.

In most markets, companies can raise prices to offset higher costs. In the utility sector however, most firms need to get the government's permission to change rates because of their monopolistic nature. Because consumers have already been hit hard by the recession, regulators may be less merciful towards utilities. As we have seen in numerous other companies this year, these problems can result in credit downgrades, which makes it even harder to obtain new financing.

The 'double threat' of slacking consumer demand and a tricky credit market is more damaging to the utility sector than to most others. In the past few years, utilities have been on a growth spurt expanding fervently and taking on many new projects such as new power plants. These projects are tough to abandon because most companies have already poured millions into them and a half-built power plant is worthless.

Companies in Danger

Morningstar has listed four companies that they believe have their dividend payouts on the chopping block. They include:

-Pinnacle West (PNW)

-Hawaiian Electric (HE)

-PNM Resources (PNM)

-NiSource (NI)

Well-Positioned Companies

Morningstar has also listed their top four picks that they believe can maintain their payments. The list includes:

-NSTAR (NST)

-Southern (SO)

-Westar Energy (WR)

-Northeast Utilities (NU)

Good Luck,

Ryan Vanzo

About the author:

Ryan Vanzo
Ryan Vanzo has been working in the financial sector for over six years and has expertise in both the stock market and the economy. Specializing in deep-value investing, Ryan Vanzo has been able to navigate turbulent and calm markets alike.

Rating: 4.6/5 (8 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide