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The only thing better than a sector with a lot of growth potential – like energy stocks – is finding a financially sound group of stocks to buy within that sector that pays a healthy dividend to boot.
And a recent screen by investment research firm Value Line turned up five such energy stocks, all electric and gas utilities.
Technically, Value Line cast a wider net that included all stocks. The screen actually yielded 17 stocks, many of them well-known companies like McDonald's Corp., Lockheed Martin and General Mills.
But the beauty of an exercise like this is finding the less-obvious gems, which in this case turned out to be mostly energy stocks.
Value Line used several proprietary filters – financial strength, safety and timeliness –
to narrow the list.
Financial Strength is based on the company's balance sheet, as well such factors as cash flow and the level and direction of profits. Safety is based on price stability and financial strength,
and timeliness tracks a stock's relative price performance over the next six to 12 months.
The dividend stock criteria were particularly rigorous. Only stocks that had dividend growth at a compounded annual rate of at least 7% over the past five years and estimated growth rates of 7% for the next three to five years made the cut.
Furthermore, the minimum estimated yield for the next year had to be at least 3%.
"The set of stocks that made the final cut are not only judged to be safer than most, but also possess proven and prospective dividend growth rates that are likely toexceed the average rate of inflation," the Value Line report said, noting the list should "appeal to conservative investors in search of current income."
Let's take a look at the five energy stocks that landed on this choice list.
Low-Risk Energy Stocks to Buy – with Plump Dividends
- NextEra Energy Inc. (NYSE: NEE): You actually may have heard of this one – until 2010 it was known as FPL Group; it operates Florida Power and Light. NEE generates and distributes electricity. While it uses some conventional sources like nuclear, coal and natural gas, NextEra is also focused on renewable sources like wind and solar. NEE trades at about $73.10 with an average one-year price target of $75.62. It pays a dividend of $2.40 for a yield of 3.30%.
- Sempra Energy (NYSE: SRE): Sempra Energy is a gas and electric utility based in San Diego, CA, but has operations in Peru, Chile, Argentina and Mexico. Sempra not only distributes natural gas; it also operates an LNG (liquefied natural gas) import/export terminal. Sempra has also diversified into wind and solar. SRE trades at about $76.42 with a one-year target of $76.55. The stock pays a dividend $2.40 for a yield of 3.20%.
- Wisconsin Energy Corp. (NYSE: WEC): WEC, based in Milwaukee, generates and distributes electricity, natural gas and steam. The company invests in and develops real estate, mostly in Wisconsin. Wisconsin Energy trades at about $40.18 with a one-year target of $40.48. WEC pays a dividend of $1.36 for a yield of 3.40%.
- Northeast Utilities (NYSE: NU): This public utility holding company serves several New England states, including Connecticut, New Hampshire and Massachusetts. NU generates some its own power, but purchases most of the electricity it delivers. The stock, which trades at about $41.23, recently hit a 52-week high. The one-year price target for NU is $42.44. Northeast Utilities pays a dividend of $1.47 for a yield of 3.60%.
- South Jersey Industries Inc. (NYSE: SJI): SJI focuses mostly on natural gas transmission, although it has other energy-related projects such as thermal facilities and solar projects. SJI also owns oil, gas and mineral rights in the Marcellus Shale region of Pennsylvania. South Jersey Industries trades at about $55.21 and has a one-year target of $59.50. SJI pays a dividend of $1.77 for a yield of 3.20%.
Interested in energy stocks? Check out this recent report: The Best Energy Stocks to Buy According to Industry Insiders
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- Value Line:
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About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.