For many investors, utility companies have been the star performers of recent years. Not only have they offered superb yields, with dividends rising, they’ve also posted strong capital gains during a rather lacklustre period for the FTSE 100.
For example, water and waste services company Pennon (LSE: PNN) has posted a rise in its share price of 33% in the last five years. During the same period, the FTSE 100 has delivered a fall in its value of 7%. In addition, Pennon’s dividends of around 22% mean that its total return since December 2010 is above and beyond that of the wider index.
Looking ahead, further outperformance is on the cards. That’s because Pennon’s stability and resilience is likely to have considerable appeal during an uncertain period for the FTSE 100. With investor sentiment being rather flippant at the present time, Pennon’s consistency could prove to be a useful ally for Foolish investors. And with its bottom line due to rise by 9% next year, it could continue to offer upbeat capital gains in 2016 too. This, plus a dividend yield of 4.3%, marks Pennon out as a strong buy at the present time.
Power player
Also posting excellent returns in the last five years has been domestic energy supplier SSE (LSE: SSE). Its shares are up by 25% since December 2010 and with an income return of 35% alongside this, SSE has been a highly profitable investment in recent years.
This looks set to be the case in 2016 and beyond too. SSE offers a stunning yield of 6.2% and with the company aiming to increase shareholder payouts by at least as much as inflation over the medium term, its investors should receive a real-terms rise in their incomes. Furthermore, SSE trades on a price-to-earnings (P/E) ratio of just 12.9 and this indicates that an upward rerating is relatively likely at a time when many of SSE’s utility peers trade on substantially higher valuations.
Big change ahead
Of course, not all utility companies have been great investments in recent years. For example, Centrica (LSE: CNA) has posted a fall of 36% since December 2010, but this is mainly as a result of a declining oil price that has hurt profitability in the company’s oil and gas division.
As a result of this, Centrica has announced a major change in its business model, with oil and gas assets set to be sold off as it gives up on becoming a major global player in that space. Instead, it will focus on domestic energy supply and this should provide it with a more resilient and consistent earnings stream in future years.
Clearly, the changes being made are vast and it will take a number of years for Centrica to complete its transformation. However, investor sentiment could gradually improve as it makes progress in this regard. And with its shares trading on a P/E ratio of just 12 and offering a yield of 5.6%, now could be a sound moment to buy it for the long term.
