Sempra Energy (NYSE:SRE) offers investors a less volatile earnings stream due to its core regulated utility operations in Southern California, higher growth opportunities among its non regulated businesses, and a healthy dividend for investors interested in income. The company discussed these and other operational and financial details at recent analyst meeting.
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Sempra Energy owns San Diego Gas & Electric and Southern California Gas Company, two large regulated utilities that operate in California, providing electricity and natural gas to their customers.
These two businesses provide the majority of Sempra Energy's earnings stream and earned $655 million, or approximately 73% of the company's non GAAP earnings in 2010. The utilities also provide some stability to the company's earnings because of the regulated nature of the businesses. In 2011, Sempra Energy estimates that San Diego Gas & Electric and Southern California Gas Company may earn as much as $710 million for the company.
Pipelines and Storage
Sempra Energy owns a network of pipeline and storage assets, and is looking to generate 14% earnings growth in this business segment through 2015. The company expects earnings to reach $340 million to $370 million by 2015, up from $159 million in 2010.
Sempra Energy is also involved in the Rockies Express Pipeline. This pipeline is approximately 1,700 miles and brings natural gas from Colorado to Ohio. The pipeline is 50% owned and operated by Kinder Morgan Energy Partners, L.P. (NYSE:KMP). Conoco Phillips (NYSE:COP) is the third company involved with this venture.
Sempra Energy owns storage and pipeline assets in Mexico and has regulated utility operations in Chile and Peru. The company expects future growth opportunities in all three of these countries.
Sempra Energy used the analyst meeting to restate its guidance for earnings in 2011, which the company expects to be in a range from $4.00 to $4.30 per share. The company also set 2012 earnings guidance at $4.30 to $4.60 per share.
Sempra Energy is targeting a long-term compound annual growth in earnings between 6% and 8% over the next five years. If the company achieves this target, earnings per share in 2015 will fall between $5.50 and $5.80.
Many investors buy utility stocks due to the income received from dividends by these companies. Sempra Energy paid a $1.65 dividend over the last four quarters, providing a current yield of 3.6%. Sempra Energy indicated that it plans to grow this dividend at the same rate as earnings over the next five years, and the company is targeting a payout ratio of 45 to 50% as part of its dividend policy.
The yield offered by Sempra Energy is competitive with other natural gas utilities. Nicor (NYSE:GAS) has a current yield of 3.5%, while Northwest Natural Gas Company (NYSE:NWN) offers investors a yield of 3.8%.
The Bottom Line
Sempra Energy used a recent analyst meeting to make the case for buying its stock. This includes a less-volatile core earnings stream, along with higher growth from the company's non-regulated buisnesses and a high dividend. (For related reading, please see Trust In Utilities.)
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