Banking on Energy - Pinnacle West (PNW)

Despite an earnings roller-coaster over the past three years, Pinnacle West has a dividend yield over 5% and has maintained the same high payout for three years running.

The energy sector is a big (and profitable) segment of the US economy and conservative investors seeking healthy dividend flows might want to consider some of the leading industry players for their high dividend portfolios.


Pinnacle West Capital Corporation (PNW) is a utility holding company which, through its subsidiary, provides either retail or wholesale electric service to most of the State of Arizona. The company has a 119 year trading history with affiliate Arizona Public Service (APS), with more than a million customers in 11 of Arizona’s 15 counties. It is also the operator and co-owner of the Palo Verde Nuclear Generating Station, one of the major power suppliers in the region.


Investors enjoy a historical dividend yield of around 5.34%, and the stock trades on an undemanding forward price to earnings (PE) multiple of around 12.6 time earnings.


Pinnacle West (PNW) also received a boost earlier in the year when the Arizona Corporation Commission approved plans for its AZ Sun program which will deliver solar energy to Arizona. Over the next four years APS plans to invest up to $500 million for 100 megawatts of turn-key photovoltaic power plants across Arizona. Developers will be selected to build the plants, which APS will own.


When Pinnacle West (PNW) reported first quarter earnings earlier in the year the company delivered a net loss of $6 million, or $0.06 per diluted share of common stock, for the quarter ended 31 March. This was in comparison to a net loss of $156.5 million, or $1.55 per diluted share, for the same quarter in 2009. Clearly things are getting better. This included a turnaround at APS which reported first quarter net income of $11 million, compared with a net loss of $15.5 million for the comparable 2009 quarter.


Asked about the earnings outlook for the next two years the company estimated its 2010 on-going consolidated earnings will be in the range of $2.95 to $3.10 per diluted share with "some opportunity for modestly exceeding that range" in 2011.


Despite the earnings roller-coaster dividends have remained at $2.10 annually for the past three years. The company is focused on executing its renewable energy program, actively managing costs and identifying additional efficiencies and savings throughout the organization.

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