What we’re looking for
Markets have turned hideous and portfolios have been bruised and battered. So where should investors seek shelter in theses uncertain times?
Defensive stocks are usually the first place to look, especially utilities and pipelines with their juicy dividends and product offerings that are always in demand. No matter what the economic climate, people will always need gas and electricity.
To provide guidance on where some values may reside, this screen takes a look at energy services firms and utilities with the lowest price-to-earnings ratios. To make our screen, all companies had to have at least $1.5-billion in market capitalization and be listed on a Canadian exchange.
What we found
Topping our list is a name that may not come first to mind when thinking about the utility sector: Toronto-based Just Energy Group Inc. The company that sells natural gas and electricity to residential customers in the U.S. and Canada under long-term contracts converted to a TSX-listed corporation from an income trust at the start of this year and offers a fat dividend yield of just over 9 per cent, the highest on our screen. The stock, which has been trending lower since early spring, is trading near 52-week lows. While the majority of analysts rate Just Energy as a “hold,” their median target price of $16 suggests some upside potential.
Next up is a more familiar name, Atco Ltd. of Calgary. It offers a much less generous yield of just under 2 per cent, but is highly diversified within the sector, owning businesses that include utilities, power generation, natural gas gathering, storage and logistics. At the end of July, Atco also reported a rise in second-quarter profit to $61-million from $59-million a year earlier as returns picked up from its utilities business. It’s well off its 52-week high of $66.31 recorded in May.