Investopedia: Can E.On Maintain Its Fat Dividend Through A Difficult Restructuring?

Experienced dividend investors know better than to just take a fat dividend yield for granted. While there certainly are opportunities every so often to pluck an overlooked or underappreciated income story, oftentimes high yields are best read as a flashing “danger” sign.

That brings me to German utility company E.On (Nasdaq:EONGY). A dividend yield of nearly 9% is certainly attractive these days, but E.On is still in the early years of a difficult transition that is seeing the company cut costs and scale out of its traditional generation business in favor of newer opportunities like renewable generation, oil/gas exploration, and overseas generation. On balance I'm bullish on E.On's prospects for remaking itself over the next three years, but I would caution investors that the dividend could get cut, and possibly cut substantially, before the process is complete.

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Investopedia: Exelon's Discount May Offer An Opportunity

It feels like investors and analysts have spent the better part of two decades arguing that power prices in regions like the Midwest and Mid-Atlantic should be higher than they are. Along the way, several independent power producers ((including Dynegy (OTC:DYNIQ)) have faltered badly as consumer-friendly regulators and stubbornly lower power prices have made this a perennial "wait 'til next year" market. With power prices recently testing historical lows, Exelon (NYSE:EXC) shares have been quite weak. Is this an undervalued high-quality utility story, or just another utility doomed to struggle with lower-than-expected power prices in its core regions?

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Investopedia: Duke Energy Has Made Utilities Interesting Again, For All The Wrong Reasons

Internal corporate politics are often confusing, if not incomprehensible, to outsiders, but sometimes a corporation goes above and beyond the call of duty in creating a "what the ... ?" moment for analysts and investors to ponder. Enter Duke Energy (NYSE:DUK) and what appears to be a scandal-in-the-making regarding its sudden CEO change in the wake of the closing of its acquisition of Progress Energy.

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Investopedia: Piedmont's Total Return Prospects Look Middling

Utilities are predictable businesses, but not entirely risk free. That's especially true in the case of a company like Piedmont Natural Gas (NYSE:PNY) where a lot of the company's future growth is predicated on customers switching over to gas. While Piedmont does enjoy a constructive regulatory environment and has been a very consistent dividend payer, buying the shares with a yield below 4% doesn't seem to make all that much sense.

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Seeking Alpha: AEP Offers Reasonable Compsenation For Its Risks

Utilities don't get much attention unless the topic concerns dividend investing or some major disaster. That's unfortunate, as the utility sector is seeing some pretty interesting developments in terms of mergers, deregulation, environmental rules, and fuel economics. As one of the largest utilities in the country, American Electric Power (AEP) is seeing the impact of all of these on its operations, but perhaps none so much as the oncoming deregulation in Ohio.

While investors ought to shop around and consider other dividend-heavy ideas like pipeline operators, this utility isn't a bad option for those content to sit tight and collect dividends.

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http://seekingalpha.com/article/514981-aep-offers-reasonable-compensation-for-its-risks

Seeking Alpha: AES - Above Average Growth, An Improving Balance Sheet, Higher Dividends

It has taken a number of years, but global electrical utility AES Corp. (AES) finally seems to have a plan in place that can drive reasonable returns for shareholders. While commodity costs and forex represent some challenges for the near term, AES has a good long-term plan in place with respect to driving out costs, focusing on high-potential growth markets, and seeing cash go back to shareholders.

Minimal Surprises In The Fourth Quarter
AES offered relatively few surprises for the fourth quarter. Revenue rose about 1% as reported, with the company's Latin American operations representing about two-thirds of the revenue base. Profitability was better, though, as GAAP gross margin, adjusted gross margin, and proportional gross margin all showed solid progress.

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AES: Above Average Growth, An Improving Balance Sheet, Higher Dividends

Seeking Alpha: Will AES Finally Make Good In 2012?

Waiting for global electrical utility operator AES to pay off as an investment has been a lot like waiting for Godot, though I don't remember so many disappointments in Beckett's play. Although AES has a great collection of power generation assets, it has for some time now and management has never yet managed to wring much value out of them. With new management and a new plan, perhaps long-suffering investors will see some rewards for their patience in 2012.

The New New Plan
Long-term investors in AES have heard enough new plans over the years that they should well be skeptical. In particular, AES has a long history of shuffling the deck – selling this or that project and investing hundreds of millions into the next “big thing” all in the hopes of generating some real returns from a large asset base. Heretofore, it hasn't worked out so well and investors would have frankly done better with a money-market account for the last decade.

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Will AES Finally Make Good In 2012?

July's Rail Traffic Data As Clear As Mud

During times of economic uncertainty, many investors look far and wide for data to help make sense of it all. Unfortunately, rail traffic data is not a big help today. Much like that classic Monopoly illustration of a man with his palms out and seeming to shrug, it is hard to get much useful information on the economy these days from the traditional measurements and statistics. Perhaps that is just how things are today; there are certainly signs that recovery continues to crawl along, but there are plenty "danger" signs flashing along the way. 

Another Dip Down 
The strong recovery trend in rail traffic is definitely over and done with for now, as July's results showed another decline (the second in four months). Rail traffic in July fell 1% from last year's level, while it did climb 0.7% on a sequential basis. Canadian traffic was quite a bit stronger, up 3.7% from last year, and intermodal was strong both in the U.S. and Canada. 


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Investopedia: The Biggest Nuclear Operators In The United States

There is no question that the disaster in Japan has refocused investor attention on nuclear power's future both abroad and in the United States. Although it is true that nuclear power is not nearly as important to the U.S. power infrastructure as it is in some countries (notably France, Belgium, Sweden, Germany and Japan), it is more pervasive than some investors may realize. 

More to the point, while there is a wide range of company-level exposure to nuclear power, the reality is that a very large percentage of U.S. utilities have some level of exposure. Given the difficulties of decommissioning nuclear facilities and the trouble of installing alternate capacity, this is unlikely to change.
Nevertheless, investors may find it helpful to keep a cheat-sheet on the exposure levels of major U.S. utilities. Please note that the following tables to include somewhat arbitrary distinctions between "regulated" and "diversified" and that the numbers do not include power purchased under long-term contracts (which can be significant for some utilities). 


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Investopedia: Does Getting Bigger Make Duke Energy Better?

Utility deals are not like other deals. Utilities do not buy each other to get access to cutting-edge technology or popular products nor to take a competitive asset off the market so that it cannot fall into a competitor's hands. Instead, utility mergers are often about finding a few tenths of a percentage of savings here or there and perhaps about creating a more desirable profile of operating markets. To that end, then, it does not really seem all that likely that Duke Energy's (NYSE:DUK) acquisition of Progress Energy (NYSE:PGN) is going to be the start of a wave of utility M&A. 

The Deal as It Stands
Duke Energy announced Monday morning that it had reached an agreement to acquire Progress Energy in an all-stock deal. Duke will give each Progress Energy shareholder 2.6125 shares of its stock - a ratio that valued Progress Energy at $46.48 per share based on Friday's closing prices. That in turn represents a 4% premium to Progress's Friday close, and a 7% premium to the price of the utility before deal chatter started to build and push the stock higher.

A Logical Deal ... To a Point
Assuming that the various regulators allow the deal to go through unchanged (more on that later), it will produce the largest utility in the country with over $8 billion in annual operating EBITDA and 57 gigawatts of generating capacity in the U.S.. Impressive as that sounds, it is still a small fraction of the total U.S. electrical generation market.

Where this deal makes sense is in the familiar operating environments of the two companies. For both banks and utilities, the Southeast U.S. is an attractive market for the same basic reasons - above-average population growth and relatively friendly regulatory regimes. Both utilities are major players in the utility-friendly Carolinas, and Progress will give Duke good exposure to the also-friendly (and attractive) market of Florida and increase the percentage of earnings it gains from regulated markets.

Beyond that, this deal will help to mitigate some of Duke's risk exposure to possible troubles in Ohio and Indiana. In Ohio, for instance, Duke is losing out to competitive suppliers due to above-market rates and is trying to convince regulators to allow it to move to "market rate option" pricing. 


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New EPA Rules Could Stir The Air

Regulation is the ever-present risk for utility companies, and this came to the fore again this week with new potential EPA pollution regulations. In particular, these rules will target emissions of sulfur dioxide, nitrogen oxides and fine particles. If the EPA gets its way and the rules go into effect, it will mean tougher air pollution standards that affect 31 states in the eastern half of the United States. (Check out Save The Earth: Become A Capitalist.) 

Regulations always come with costs, though, and this one is no different. As the primary producers in the affected areas, American Electric Power (NYSE:AEP), Southern Company (NYSE:SO) and Duke Energy (NYSE:DUK) would face the brunt of the new rules.

Although the EPA says the regulations will add $2.8 billion a year in new costs, you can assume that the industry will disagree and point to higher costs. After all, these companies are going to face tough decisions about buying new technology, switching fuels, and shutting down small plants. Couple that with expected new rules on mercury emissions, and the industry is going to be facing some serious budgeting decisions in the coming years. 


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