Wednesday March 03, 2010
By Roger Conrad, editor The Utility Forecaster
Over the next five years new Growth Portfolio Core Holding Sempra Energy (NYSE: SRE) will spend $12 billion adding to its collection of low-risk power and gas distribution, pipeline and energy storage assets.
That’s a powerful driver for dividend growth, which has already averaged more than 9 percent the past five years.
Formed by the “convergence” merger of Pacific Enterprises, the parent of Southern California Gas, and Enova Corp, the parent company of San Diego Gas & Electric, in June 1998, Sempra serves 29 million customers globally, 20 million in California.
Under Governor Arnold Schwarzenegger, Golden State regulation has been first-rate. But the company has also successfully navigated adverse market and political conditions time and again.
Sempra divested most of its California generation assets when the state deregulated electricity in the 1990s. As a result, it has no potential problems from carbon dioxide regulation; most of its 2,600 megawatts (MW) are state-of-the-art gas-fired plants.
It also runs a 400 MW solar facility, is an equal partner with BP Wind Energy in a 200 MW wind plant in Indiana and owns a liquid natural gas import facility in Mexico.
All of these assets produce steady cash flow, mostly under long-term contracts. Meanwhile, 2010 results will get a lift as Sempra gets a stronger partner for its low-risk commodity business, currently 51 percent owned by financially strapped Royal Bank of Scotland (NYSE: RBS).
In recent years, I’ve often rated Sempra a buy but haven’t added it to the Portfolio. With the stock off nearly 10 percent this year on uncertainty regarding the commodity business, it’s time to strike. Buy Sempra Energy up to 55.
Learn more about this financial newsletter at Roger Conrad's The Utility Forecaster.
