Friday, January 06, 2012

Green Dividends

The last in the series on “green” utilities features OGE Energy Corporation (OGE:  NYSE), a supplier of electricity and natural gas to residential and business customers in Oklahoma and Texas.  It is a fairly good living to OGE, which earned $337 million in net income on $3.9 billion in revenue in the twelve months ending September 30, 2011.  Its operating profit margin during this time period was 16.4%, well above the 13% average of the utility industry.

OGE converted 18.8% of its sales to cash in the last year, providing ample support for a $1.50 per share dividend.  The current forward yield is 2.8%, slightly below the average five–year dividend yield.  The slip in yield is largely due to a strong stock price.  OGE is trading very near its 52-week high of $57.54, pushing the dividend yield down and driving up the price/earnings multiple to 15.4 times 2012 estimated earnings.

Is OGE worth its premium price?  Last year the trade magazine Electric Light & Power named OG and E Oklahoma Gas and Electric Services OG and E as the utility of the year.  The company’s energy saving and renewable energy initiatives helped earn the award. By the end of 2012, wind power will make up 10 percent of OG and E’s power generation.  OG and E is also installing smart meters at customer premises at the rate of 1,500 per day and expects to achieve 100% penetration by the end of 2012.  For the first time see on a near-real-time basis how much energy they’re using and what that monthly bill will be in advance of the bill arriving in the mail.

The consensus estimate for the December 2011 quarter is $0.33 per share in earnings.  OGE has not been consistent in meeting analyst estimates.  A miss could trim some fat from the OGE price, providing investors a chance to establish positions in an interesting utility.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

No comments: