Company Spotlight - Vectren Corp. (VVC) Looking For Income? | | NYSE: VVC | | The Good: Profits Back on Track | P/E: 19.0 | PSR: 1.1 | | The Bad: Large outlays needed next 3 years. | ROE: 9.4% | Debt/Eq: 0.99 | | The Beautiful: It's a very cold winter and efficiencies will pay off. | DIV. YIELD: 4.5% |
January 3, 2008 - Vectren Corp. (VVC-NYSE) intends to inundate Indiana and Ohio with energy. Through its utility subsidiaries (Vectren Energy Delivery of Indiana, and Vectren Energy Delivery of Ohio), the company distributes natural gas to 995,000 business and residential customers in the two states. It also distributes electricity to 141,000 customers and has more than 1,350 MW of primarily coal-fired generating capacity in Indiana. Vectren's other nonregulated businesses include retail and wholesale energy marketing and management services; coal mining and synthetic fuels production; utility infrastructure construction; and broadband communication services. It also has a nice dividend. 4.5% to be exact. The dividend takes 69% of earnings to pay, down from 86% last year. Earnings were $1.44 last year, should be $1.85 this year, $1.95 next year. Earnings are predicted to grow by 4.5% a year, on average, over the next 5 years.
Some large expenses loom for Vectren. To comply with the U.S. Environmental Protection Agency's requirements, VVC, along with Alcan Aluminum, joint owners of a coal-fired station in Warrick, is spending $300 million to reduce sulfur dioxide emissions by 98% at four units. VVC's share of the cost is $70 million. There is also expense required to enhance the efficiency of existing scrubbers at certain coal burners which will also have an upgrade to their infrastructures. Management estimates spending $300 million each year for the next 3 years. Since cash flow isn't sufficient to fund these projects, external financing will be used. That means more debt or sale of stock. The company filed for higher rates in 2 jurisdictions. One is for increased gas base rates of $41 million in northern Indiana to recover costs of maintaining and expanding the 12,000 mile distribution and storage system. Ruling on the petition is expected in the second quarter. In Ohio, VVC is looking for $29 million more for its gas distribution business. Expect to hear on the request late this year. Other numbers: Stock has held steady for the last 3 years, going between $24 and $30. Dividend increased each year for the last 4 years. Revenues jumped to $2.32 billion this year, up from $2.04 billion last year. Electricity is 20% of sales, gas 80%. Long term debt is 47% of the balance sheet. Vectren is an A rated credit with a good dividend. It's expanding its customer base. The stock has been steady for years. If you're looking for income, you'll do well to spend more time with VVC. It's growing and paying investors at the same time. - Company Web site: www.vectren.com - Ted Allrich |
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