Utility companies can be sources of good dividend income. It's always advisable to have some basic portfolio earnings that you can count on. Your other stocks may be long-term plays or cyclicals with volatile price movements, so returns may be up and down without some steady earners.
Here are two utilities that you should know about and could fill the gap that your portfolio may have.
Diversified energy infrastructure business SP AusNet (ASX: SPN) operates the primary electricity transmission network in Victoria, an electricity distribution network in eastern Victoria and a gas distribution network in western Victoria.
Since listing in 2005, annual revenue has risen every year uninterrupted. Net profit in the last three years is up from $209 million to $279.1 million, or 10.1% compounded annually.
Its dividend yield is 6.2% and it has a PE of 15. Currently it's $1.34, the same as the 52-week high in late February.
The company announced in March that it has terminated its management contract with its largest shareholder Singapore Power. This was brought on by Singapore Power selling 19.9% of its 51% shareholding in SP Ausnet to China's State Grid Corporation.
To exit the contract before the September 2015 expiry, SP Ausnet will pay $50 million, but it estimates that it will save about $10 million annually in management fees. That works out to be about 3 cents per security.
Mighty River Power Ltd (ASX: MYT), the New Zealand electricity utility company, recently listed in May 2013. It develops and produces electricity from renewable and other energy sources like geothermal for retail and wholesale customers.
It supplies electricity to about 20% of homes and businesses and is the 12th largest company listed on the New Zealand stock exchange.
It offers a 5.6% dividend and has a 17 PE. The stock listed on the ASX at $2.21 and currently is $2.05.
FY2013 full year net profit was $96 million with a return on equity of 5.6%. First half FY2014 net profit was way up on the previous corresponding period. The company expects that full year net profit will be about NZ$35 million more than the IPO forecast, or about NZ$195 million (about A$179.4 million).
The company has been buying back shares on the market in the NZX since October 2013. To date it has purchased about 22.9 million shares and may buy up to 2.1 million more.
Foolish takeaway
Look for steady dividend payment and understand how much the company may have to invest in capital expenditure to maintain its growth.
