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Five things that I like about FPL



March 24, 2009 – Comments (1) | RELATED TICKERS: FPL.DL2


1) While electricity usage does drop some and more people fall behind on their bills during recessions, with substantial operations in Florida FPL has a large residential customer base.  This is important during economic slowdowns because industrial users are much more likely to cut back on power usage than residential customers are.  Industrial users cut their electricity usage by 2.6% in 2008, but residential customers reduced their power use by just 0.3%. 

2) While it's dividend of just under 4% won't knock your socks off, it is relatively (nothing in this world is absolute) safe.  This is important because utilities that can't manage their debt and are forced to cut their dividends get clobbered by Mr. Market.  The three major utilities that were recently forced to cut their divies, CEG, GXP, and AEE, are all down over 30% since they announced their cuts.

3) Despite the tight credit markets that are hammering some companies, FPL has still been able to issue debt.  Granted, it has to pay higher rates than it used to, but at least it has the option to issue new bonds if it wants.  I got an e-mail from my broker a few weeks ago about a new FPL bond issue.  I decided to pass on it because while its yield was attractive, I forget what it was exactly, it was super long term debt and if I recall correctly it was junior, not senior.  The bottom line is unlike many companies out there, FPL has access to capital if it decides that it needs it.

4) Because it has some non-regulated business, the upside for FPL is higher if electricity prices begin to recover than it is for a completely regulated company.  Electricity prices are linked to the prices of commodities like coal and natural gas.  Many analysts expect a rebound in the price of natural gas in the not too distant future.  Any rally in nat gas prices would indirectly benefit FPL.

5) FPL is just about the cleanest power company out there so it has an embedded call option in that it would benefit tremendously if the government passes some sort of Cap and Trade carbon tax.

I haven't bought any common stock in a while, but if I was going to buy more...and I eventually will...FPL is at the top of my list.


Long FPL

1 Comments – Post Your Own

#1) On March 24, 2009 at 3:46 PM, bdash (26.23) wrote:

Good points. I am personally staying away because:

1) People have priced in who is buying their electricity as you noted in your first point; however Florida is the foreclosure capital of the US and as such the overall power usage will drop more than folks expect.

2) It has a 3.8% dividend and is growing at a snails pace. I can buy bonds that are equally as safe and are yielding 4-6% higher than this

3) Its price is awfully high compared to many of the other utilities (see the yield, amount off peak) and quite frankly I can't figure out why anyone would buy this over, say, Cons Ed which yields about 2.4% more, sells for only $3 over book (as oppose to $23 over) and has less debt per share.


I think its a bit overpriced right now but not bad for the long term because of their possition regarding fuel and emmisions  

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