Utilities are popular for their stability and dividends but Eversource Energy also has very strong growth.
The company’s large investment program should allow it to grow at a 7% CAGR until 2025 with growth accelerating after that.
The company is a major player in the development of offshore wind power and the areas in which it operates are looking for further capacity increases.
The 2.74% yield is low for a utility but it is still reasonable and is easily sustainable.
The company is trading at a reasonable valuation relative to its peers.
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steverts/iStock via Getty Images Eversource Energy (NYSE: ES ) is a regulated electric and natural gas utility providing services to customers in Massachusetts, Connecticut, and New Hampshire. Utility companies have long been favorites of retirees and other conservative investors due largely to their generally stable cash flows and fairly high dividend yields. Eversource Energy is no exception to this as the company boasts a respectable 2.74% yield at the current price. Eversource Energy is also fairly well known as one of the most progressive electric utilities as it has been incredibly aggressive at pushing the development of renewable sources of energy but the market has admittedly not recognized this yet. The company’s third quarter 2021 results were admittedly not particularly impressive but Eversource Energy still boasts some growth prospects and other characteristics that may make it an attractive investment. About Eversource Energy
As noted in the introduction, Eversource Energy is the largest utility in New England, serving customers in Massachusetts, Connecticut, and New Hampshire: Source: Eversource Energy
This is one of the most populated regions of the country and as such Eversource Energy serves approximately four million customers, which is more than most other utility companies. Approximately 3.24 million of these are electricity customers, which makes this by far the largest division that the company operates. This is something that may appeal to some investors, especially more progressive ones. This is because there are many people that are actively pushing to reduce the use of fossil fuels and so are attempting to move away from these and towards electricity for some uses. This is a process called electrification, which we will discuss later. Although, as we will also see later, this will not boost the demand for electricity by particularly much, the fact does still remain that the demand for electricity is not as seasonal as natural gas. After all, electricity is consumed year-round but natural gas is primarily consumed in the winter for space heating. As such, the company’s focus on electricity may give it more stable revenues than a pure natural gas utility (although it still might not be as stable as one that is evenly split between the two fuels).
One of the characteristics of utility companies is that they tend to enjoy remarkably stable financial performance, which is something that is appealing to retirees and more conservative investors. The reason for this stability is fairly obvious. After all, utilities provide a product that most people consider to be necessities so they will typical prioritize paying their utility bill over more discretionary expenses. With that said though, sometimes they have disappointing quarters. As we can see here, Eversource’s third quarter 2021 income was somewhat worse than what it had in the prior year quarter: Source: Eversource Energy
This was mostly caused by earnings declines in the firm’s natural gas and water utility businesses. The much larger electric utility business did much better as it actually delivered year-over-year earnings growth. It appears likely that the company will be able to continue this growth going forward. The primary way in which this will be accomplished is an expansion of the rate base. The rate base is the value of the company’s assets upon which regulators allow the company to earn a specified rate of return. Thus, the company can increase its revenues and cash flows by increasing the value of the assets that comprise the rate base. The way that this is accomplished is through the company investing money into improving its infrastructure. Eversource Energy is planning to do exactly this. As we can see here, Eversource Energy plans to invest approximately $7 billion into improving its infrastructure over the 2021 to 2025 period: Source: Eversource Energy
We can clearly see that this is an increase over the amounts […]