A Dividend Stock With A 5% Yield

The energy sector continues to be a market leader as crude oil and gasoline prices continue to rise higher. Today I would like to take a look at an energy stock that participates in a different segment of the energy sector. This company has large amount of nuclear and electric energy operations. This energy company has become a value stock and a dividend play trading very close to its 52 week low and has a generous 5% yield. The company is Entergy Energy (ETR).

Entergy Energy

Entergy Energy is the second largest nuclear operator in the United States with twelve nuclear power plants.  Entergy is an integrated utility company participating in electric power production and retail electric distribution operations. The company serves nearly 3 million customers in the regulated utilities industry.

The stock has been under pressure since the tsunami in Japan. Investors have concerns about increasing regulations in the nuclear energy industry in the United States. Shares have plummeted from the $74 since the disaster a month ago. The recent stock price drop may represent a good opportunity for income investors.

Last quarter’s earnings¬† report was not a pretty sight. The company blamed its results on higher fossil outage spending, higher reliability-related spending, and higher wage and benefit costs. Revenue did manage to rise 1.4%¬† to $2.5 billion dollars. Electricity revenue was up over 8% while natural gas revenue was down 4.6%. Entergy’s futures are heavily tied to the pricing power in nuclear energy and natural gas. The company has recently lowered residential rates due to a decline in natural gas prices.

Any decline in nuclear power generation would impact Entergy’s earnings power. The stock trades at 10 times earnings growth which is expensive for a stock with a negative earnings growth rate. Entergy trades at 1.4 times book value and 1 times sales which is pretty cheap. It’s important to keep in mind that this is not a quick trading play but a long term investment opportunity. The next year or so could be difficult for Entergy as the company navigates a difficult energy landscape.

Entergy is finally getting attractive to me as a value investor. The stock is down over 10% over the last 30 days. The worst news appears priced into the stock and investors are getting a reasonable bargain at these levels. The company is paying $3.32 per share to investors which is a 5% yield. The current dividend payout rate is 49% of this year’s earnings which is sustainable.

Entergy Energy is a one of those energy dividend stocks that will pay investors while they wait for long term capital appreciation.

 

Comments

  1. avatar Moneycone says:

    I bought this right after the Japanese disaster!

  2. Thanks for the article. I have not looked into Entergy in the past, but will definitely do so! Not too many value plays out there right now, so thanks again,

    DivPartisan

  3. I was looking at nuclear about a year ago with both Entergy and Exelon. Glad I didn’t buy then!

  4. I bought two Japanese energy stocks after the tsunami, but I never looked at this one … thanks for the tip

  5. avatar optionsdude says:

    This is a good tip. The way that I trade in options would cause me to consider a purchase of ETR and sell a covered call with the May $65 strike and collect premium in addition to any dividend especially since it is likely that we may see some stock market weakness heading into the summer with the “sell in May and go away” mantra.

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