3 Utility Stocks With Reasonable Valuations Yielding Over 4%

Given the run up over the past two years in the stock market and the paucity of yielding producing instruments because of the low interest rate environment, finding good yielding equities with reasonable valuations is not an easy task. Here are three utilities that meet these criteria and are worth considering.

American Electric Power Company, Inc. (AEP) – AEP engages in the generation, transmission, and distribution of electric power. It generates electricity using coal and lignite, natural gas, nuclear, and hydroelectric energy. The company distributes electric power at wholesale to other electric utility companies, rural electric co-operatives, municipalities, and other market participants, as well as to retail customers in its service areas. It also operates non-regulated wind farms and barging operations, as well as provides various energy-related services.

Valuation: The stock is selling at 12 times this year’s earnings and a little over 11 times next year’s consensus earnings. It sells at the bottom half of its five year valuation range based on P/E, P/B, and P/CF. It also yields a robust 5%. Not a sexy pick, but one that should provide decent overall return at a low risk. Credit Suisse has a $40 price target on AEP.

Public Service Enterprise Group (PEG) - Public Service Enterprise Group Incorporated, through its subsidiaries, operates in the energy industry primarily in the northeastern and mid Atlantic United States. The company primarily operates as a wholesale energy supply company that integrates its generating asset operations through its wholesale energy, fuel supply, energy trading, and marketing and risk management activities. It operates nuclear, coal, gas, and oil-fired generation facilities.

Valuation: It has had an average EPS growth over the last five years of 12%. PEG is selling at less than 12 times this year’s earnings and yields 4.2%. It gets approximately 60% of its generating capacity from Nuclear. It is selling at close to the bottom of its five year valuation range based on P/E, P/S, P/B, and P/CF. S&P has a $36 price target on PEG.

TransCanada Corp (TRP) - TransCanada Corporation operates as an energy infrastructure company in North America. The company operates in two segments, Pipelines and Energy. The Pipelines segment develops and operates energy infrastructure, including natural gas pipelines, regulated gas storage facilities, and projects related to oil pipelines. As of December 31, 2009, its pipelines network extended approximately 60,000 kilometers tapping into various gas supply basins in North America. The Energy segment engages in the acquisition, development, construction, ownership, and operation of electrical power generation plants; the purchase and marketing of electricity; the provision of electricity account services to energy and industrial customers; and the development, construction, ownership, and operation of non-regulated natural gas storage in Alberta.

Valuation: TRP is selling at a little under 18.5 times 2011’s earnings and less than 17 times 2012’s consensus earnings. It has steadily raised the dividend since 2009 and TransCanada now yields 4%. More importantly, in 2009 TRP became the sole owner of the Keystone project. This project should add 1.3B to EBIDTA by 2013. In addition, it has 22B of projects coming on line by end of 2012 which should provide years of organic growth in earnings and dividends. TRP also has significant exposure to oil sands projects and should benefit by the continued growth of that energy source. S&P has a $48 price target on TRP.

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