Not All Utility Stocks Are Overpriced

PPL (PPL) stock is trading at 12x its forward earnings. The utility stock seems to be trading at a large discount compared to its peers and its historical average. PPL stock was weak in the second quarter. So far, the stock has risen 6% this year. PPL is trading at a dividend yield of 5.5%—the highest among the S&P 500 utilities. Interestingly, PPL generates two-thirds of its revenues from the United Kingdom, which bodes well from the diversification perspective.

AES (AES) is trading at 12x its forward earnings, which is way lower than its peers. AES’s earnings are less stable because a large portion of its earnings come from competitive operations. AES operates in 15 countries, which exposes it to exchange rate risks. The company has reduced its international presence in the last few years to minimize business risk. What’s striking about AES’s dividend profile is its dividend growth. The company grew its dividend per share 27% compounded annually in the last five years. Broader utilities’ average dividend growth was around 4% during the same period.

Dominion Energy’s (D) valuation looks attractive. The company is trading at 17x its forward earnings compared to its five-year historical average valuation around 23x. So far, the stock has risen 5% this year.

Slowing global economic growth due to trade disputes put defensives back in focus. An impending interest rate cut could be positive for utility stocks. They’re perceived as bond substitutes due to higher yields. Also, lower borrowing costs will likely improve their profitability in the longer term.

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To learn more, read These Utilities Have Increased Dividends for 45+ Years.

View more information: https://marketrealist.com/2019/07/not-all-utility-stocks-are-overpriced/

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