Eversource Energy (ES) pays a 2.65% dividend but I’m adding it on Monday, December 7, not to my Dividend Portfolio but to my Jubak Picks list. Why’s that? Because of the high potential for capital gains–above the dividend payout–from this stock as it continues its transition from a fossil-fuel burning unfitly to one that’s likely to attract a strong base among investors and investment funds looking for green stocks. At the end of 2019 Eversource announced that it would be carbon neutral by 2030–that’s roughly 20 years ahead of targets set by utilities such as Duke Energy (DUK). If Eversource hits its goal, it would be the first investor-owned utility in the United States to reach carbon neutral. (In 2018 Eversource divested its last remaining fossil-fuel generating capacity.) I think that’s likely to increase the potential investor base for this stock. But I’m making this pick also because Eversource looks to be adding revenue and earnings in the way that a regulated utility does–by increasing its asset base with its regulator-permitted rate of return and by increasing the permitted rate of return by building good relationships with regulators. Eversource expects to spend $9.8 billion on its core businesses through 2023. Included in this spending are three offshore wind projects that, when operational (they should all be up and running by 2024), will generate more than 1,700 megawatts of electricity. (The company announced pushouts to 2024 in when those wind projects would come on line in November, which has resulted in the weak performance of the stock recently with shares down 6.3% in the last month.) Earnings from natural gas distribution should jump in 2021 as Eversource incorporates the $1.1 billion acquisition of Columbia Gas (and a recent rate increase.) And finally, earnings from electric transmission assets are on track to grow to 40% of earnings. Since the 2012 merger with NSTAR earnings at the transmission unit have grown by 84% or a 22% compounded annual growth rate. The nationwide move to renewables such as wind and solar (not to mention the wind power projects coming on line at Eversource) require upgrades to the existing grid so power can transferred more easily, faster, and more efficiently from areas producing excess electricity to areas that need more supply at the moment. (Eversource has invested $3 billions in transmission from 2016-2018 and continues to invest more than $800 million annually.) The rate of return granted on transmission assets is set by another regulatory body, the Federal Energy Regulatory Commission (FERC). During the Trump years FERC has not been terribly reception to granting higher rates on transmission assets that would enable more production of electricity from renewables. I think a Biden FERC will be less hostile. Which is important in the longer run since Eversource plans to bid on more off-shore wind leases. The relatively shallow waters off New England make developing wind farms in that region less capital intensive than in regions with deeper waters. And finally, besides its assets in electrical power generation, electricity transmission, and natural gas transmission, Eversource has a substantial water business bolstered by the 2017 acquisition of Aquarion. Revenue from water utilities helps even out swings in revenue from other parts of the business. Eversource shares are up 1.89% for 2020 as of the close on December 4. I’m adding the shares to my Jubak Picks portfolio with a target price of $95 a share.
Eversource is my fifth utility pick in my Special Report on dividend stocks (on my JubakAM.com subscription site)–I added it to my Jubak Picks portfolio on Monday
