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Which of these utilities operates in
a region where electricity demand is
growing by over +25% per year and is
currently offering a hefty
10.7% dividend yield? A.)
Southern Co. (SO)
B.) Hawaiian Electric (HE)
C.) CPFL Energia (CPL)
D.) Huaneng Power (HNP)
E.) Scottish Power PLC (SPI)
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Published:
November 24, 2008
The
correct answer is 
(C.) CPFL Energia (CPL)
CPL is the largest private electric
utility in Brazil, with more than
six million customers and total
generating capacity of more than
1,700 megawatts. Thanks to the
nation's strong economic growth,
Brazil's electricity generation has
soared more than +25% over the past
five years compared to just +7% for
the U.S. -- which has in turn given a
phenomenal boost to CPL and its
shareholders, who are enjoying a fat
10.7% dividend yield.
The company's main area of operation in
southern Brazil is growing
particularly quickly, and roughly
75% of CPL's customers are captive
-- electricity sales to these
customers are covered by contracts
that offer a steady return and
predictable cash flows. To meet demand, CPL has plans to
double its generating capacity over
the next five years and make
acquisitions. The company also has
an established history of boosting
its payout to shareholders over
time, and its current yield is
roughly double the average for a
U.S. utility.
Why is CPL doing so well in a
suffering global economy? Because
the utility industry provides
crucial services that make revenues
largely insensitive to economic
growth or contraction. Even better,
utilities usually have
near-monopolies within their areas
of operation, and the large,
up-front fixed costs required to
enter the industry deter competition
as well as provide cost advantages.
The result is a highly defensive
sector with slow growth but strong,
steady annual cash flows.
With these points in mind,
StreetAuthority editor Paul Tracy
and his team set out to find the
rest of the world's largest and
best-positioned utilities that can
ride out the bad economy. In Paul's
latest issue of his
Market Advisor newsletter, he and his staff offer a
list of the best utilities -- some of
which are offering dividend yields
of 9% or more -- and a detailed look
at two of the favorites. To learn
the names of these stocks, and to
learn more about the Market
Advisor newsletter,
please visit this link.
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