3 Great Energy Stocks For Big Dividend Income

The Dogs of the Dow made big headlines as 2011 was ending. The group of 10 stocks posted gains far outpacing the general market with an average adjusted return around 17% for the year. The DJIA (DIA) ended the year with a disappointing 5.5% gain. The two other major index's, Nasdaq (QQQ) and S&P 500 (SPY) fared far worse, posting negative returns on the year. The large gains made by the Dogs came as quite a shock since the Dow Dogs, predicted at the start of each year, are supposed to be the year's worst performers. I believe that attractive dividend yields are what powered the performance of the group. Over the summer fear of global recession came to a head, sparking a massive, market wide sell-off. Negative economic pressures spurred the sell-off. 2012 has its own share of economic pressures. China, the world's largest economy, is slowing from 9% to 7.5%. The European debt crisis isn't over yet. Faced with the possibility of negative returns for the year investors have turned to cash flow strategies and dividend producing stocks such as the Dow Dogs. From the lows experienced in August 2011, to the end of the year the top five Dogs advanced an average of 21% with greatest gain (30.7%) posted by McDonald's (MCD). In contrast the Nasdaq (QQQ) gained 12% in that time, finishing the year in negative territory.

The attractiveness of a guaranteed return in the current market environment is undeniable. If you can stomach the volatility I think this year will bring, buying and holding a high-yielding stock will pay off.

I'm looking for domestic companies, with limited exposures to the slowing global economy. The American utility sector provides both. Public Service Enterprise Group Inc (PEG), CenterPoint Energy Inc (CNP) and PPL Corporation (PPL) are attractive buys.

Public Service Enterprise Group is an integrated utility provider with its headquarters in Newark, NJ. It provides wholesale power to the northeast. PEG is fairly valued, the current p/e is 11.5. 2011 earnings per share are $2.97, however, estimates for next year are lower, about $2.50. The costs of new EPA regulations will cut into the bottom line. Institutional investment in PEG is high, about 62%.

PEG has been trading in a tight range since the 2008 bear market. Currently trading around $32, PEG has not traded under $25 for seven years. Stock momentum has remained moderate while trading in the range and the long-term indicators are consistent with support at $30. The current dividend is 4.3%, which equals $1.37 on an annualized basis.

PPL Corporation is an energy and utility holding company servicing the US and the UK. It has a p/e of 9.9 and has been surprising Wall Street. Third-quarter earnings were up 50% from the previous year and total nine-month revenue was up 36%, causing management to raise full-year guidance. PPL is expecting to continue growing earnings and profit in 2012. The growth is attributed to good performance from UK operations and a shift to more regulated business in its portfolio. PPL's exposure to the European crisis is minimal. The United Kingdom is one of the strongest members of the union, lending billions to the IMF in efforts to aid the troubled union.

PPL has been trending sideways since hitting its lows in early 2009. PPL has strong support at that level, around $25. This support was revealed earlier this year when a long white candle appeared on April 12, 2011. This candle signal was accompanied by a spike in volume, a significant technical signal. Since then PPL has been trending up to its resistance at $30 and looks ready to break out. PPL is trading around $28 and pays a dividend yielding 4.9%.

CenterPoint Energy Inc is an energy delivery company working with electric transmission and natural gas distribution. CNP operates in the midwest from Louisiana, and Texas, up through Minnesota, and Wisconsin. CNP is increasing output of natural gas and increasing net income. CNP's net income included an $811 million stemming from resolutions regarding true-up proceedings with Texas. Earnings ex-payment were up from the previous year with an increase in quarter and year-to-date revenue. A 50%-60% growth in per share earnings is expected in 2012 as well. CenterPoint will continue to expand its natural gas resources, streamline delivery and manage its presence in the field. Heat in the southern plains increased the bottom lines of power companies throughout the region. Weather conditions are expected to be hot again in 2012. I have read about hot weather in every earnings report so far.

CenterPoint has enjoyed a nice bull trend post-recession. In March of 2011 CNP made a definitive break above resistance, where it is now consolidating. In the short term I expect to see CNP trade between $19 and $21 until we see how lower natural gas prices will impact earnings. In this regard, CNP stacked up well against Exelon when I last compared them. The next release date is in early spring, the date has not been set. CNP has a p/e of 15.97, which is a little high when compared with others in the group. The institutional investment is good, 70%, and the dividend pays 4%. CNP's dividend and performance will keep the market interested. I expect to see this stock go to $23 over the next 12 months.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: http://seekingalpha.com/article/318583-3-great-energy-stocks-for-big-dividend-income?source=feed

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