Resources, Energy, & Utilities 845

These sectors are all improving investors’ bottom lines in 2021, with many of these shares offering both dividends and appreciation.

American Electric Power Company, Inc. (AEP) | Daily Alert August 12
American Electric Power Co. Inc. reported second-quarter non-GAAP operating earnings of $1.18 per share was solidly up from $1.08 per share in 2Q20, and beat the consensus estimate of $1.14.

We like the company’s consistent record of dividend growth, with a 5.7% compound annual increase over the last five years. The current yield is above the peer average of 3.0%.

We also like AEP over the long term, as the company ranks among the nation’s largest generators of electricity, with substantial exposure to states with strong population growth, like Texas.

Turning to our estimates, we are maintaining our 2021 adjusted EPS estimate of $4.74. We are also maintaining our 2022 estimate of $5.05. Our long-term earnings growth rate estimate is 6%.

We think that AEP shares remain attractively valued at current prices near $89, above the midpoint of the 52-week range of $75-$94. The shares trade at 18.8-times our 2021 EPS estimate, below the midpoint of the five-year historical range of 17.0-21.3 and below the peer average of 20.5. AEP also trades at a price/book multiple of 2.1, below the peer average of 2.3.

We view AEP as an attractive holding for investors seeking regular dividend payments as well as the potential for moderate capital appreciation. Our target price is $102
Jim Kelleher, CFA, Argus Weekly Staff Report, argusresearch.com, 212-425-7500, August 5, 2021

Magellan Midstream Partners, L.P. (MMP) | Daily Alert August 30
Magellan Midstream Partners is a master limited partnership (MLP) that engages in the transportation, storage, and distribution of refined petroleum products in the United States.

Magellan’s model is fee-based, meaning it has very small exposure to commodity prices, making it attractive during commodity bear markets.

Magellan reported second-quarter net income of $280 million. Diluted net income per unit was $1.26, or $0.95 per unit excluding the impact of gains on asset sales, nearly double the $0.59 per unit in the 2020 second quarter. Growth was due to higher-than-expected refined products shipments, higher commodity prices that primarily benefited the partnership’s fractionation activities, and lower expenses due to timing.

Distributable cash flow came to $268 million for the quarter, up 28% year-over-year. With 2021 likely being the bottom of the cycle for Magellan, units are attractively priced, as is the high distribution yield.

Magellan has sizable scale in an industry where scale means better margins. The company invested $355 million in growth projects last year, with more than $500 million of potential growth projects under consideration.

We estimate fair value at 12 times DCF-per-unit, but the valuation is currently only at 9.3 times this year’s estimated DCF-per-unit of $5.00. We see outstanding projected total returns of 14.7% annually over the next five years, the result of 3% annual DCF-per-unit growth, the distribution yield, and a 5.5% tailwind from valuation gains.
Ben Reynolds, Bob Ciura, Josh Arnold, & Eli Inkrot, Sure Retirement Newsletter, suredividend.com, ben@suredividend.com, August 8, 2021

*AGL Energy Limited (AGLXY)
Aggressive Holding AGL Energy is Australia’s leading electric company. We’ve discussed at length the numerous factors dragging this stock lower, most importantly a sharp drop in earnings due to the combination of a pandemic-related drop in electricity demand, rapid proliferation of wind and especially solar and cyclical oversupply of energy.

I believe this round of results marks a bottom in AGL’s fortunes for three main reasons. First, there’s little chance of bankruptcy for either the fossil generation business or the rest of AGL. The company is still Australia’s largest electricity generator from both fossil fuels and renewable energy. It’s also the leading retailer of energy in the country’s competitive market and continues to gain share. And it’s the number one provider of distributed energy down under as well, including rooftop solar and battery storage.AGL is arguably the company Australia arguably loves most to hate.

Second, despite concerns about the execution of the spinoff, the sum of AGL’s parts is worth considerably more than its current price.

Third, after years of battling the ruling National Liberal coalition on federal energy policy, AGL and other major Australian electricity companies are on the verge of catching a major breakthrough. For all its growing unpopularity, coal is still the source of 70% of Australia’s electricity. Yet cheap solar is making giant baseload power plants increasingly uneconomic during daylight hours. With coal plant losses rising and shutdowns looming, the government is now considering a capacity market that will pay operators to keep facilities operating. If it becomes law, that alone will provide a major boost to AGL.

But there’s growing potential for something more comprehensive, possibly along the lines of the coal power phase-out plans we’ve seen so far in Alberta and Germany. In those countries, utilities have been made whole financially in return for speeding an orderly transition from coal to renewables. Such a possibility is clearly not reflected in AGL’s current share price.

For those who already have positions in AGL—which has been a recommendation in this advisory for some time—my advice is to stick with what you have. But for anyone with the patience to add a high potential battered stock at what increasingly looks like the beginning of a long recovery, AGL is again a buy up to USD7 for the OTC-traded American Depositary Receipts traded under the symbol AGLXY.
Roger Conrad, Conrad’s Utility Investor, ConradsUtilityInvestor.com, 888-960-2759, August 13, 2021

*Hess Midstream LP (HESM)
Hess Midstream Corp was one of a handful of North American midstream companies able to grow dividends at a steady clip last year. This year, it’s picked up the pace with an 11.4% lift announced in late July increasing the payout 15.6% above year ago levels. Q2 results strongly backed that growth, with the DCF coverage ratio coming in at a robust 1.4 times. And management also raised full-year EBITDA guidance to a range of $880 to $900 million, while lifting guidance for expansion CAPEX to $165 million for 2021.

At the core of these strong results is a presence in some of the most prolific areas of the Bakken, the value of which has been enhanced again by Energy Transfer’s expansion of Dakota Access Pipeline capacity.

And while the vast majority of its business remains with Hess Corp, the company is seeing revived activity from third parties, which accounted for 15% of crude oil gathering and 10% of gas gathering volumes in Q2.

Hess Midstream is a buy up to 30.
Elliott H. Gue and Roger S. Conrad, Energy Income Advisor, energyandincomeadvisor.com, 888-960-2759, August30, 2021

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