Company Description: TECO Energy Inc. owns Tampa Electric Co., which serves the Tampa Bay region in west central Florida and has significant diversified operations related to its core business.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
TE is trading at a premium to all four valuations above. The stock is trading at a 10.0% discount to its calculated fair value of $21.03. TE earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
TE earned one Star in this section for 3.) above. TE earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2001-2004, 2002-2005, 2003-2006, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1900 and has increased its dividend payments for 7 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
TE earned a Star in this section for its NPV MMA Diff. of the $29,978. This amount is in excess of the $2,800 target I look for in a stock that has increased dividends as long as TE has. The stock's current yield of 4.54% exceeds the 3.1% estimated 20-year average MMA rate.
Memberships and Peers: TE is a member of the S&P 500. The company’s peer group includes: NextEra Energy, Inc. (NEE) with a 3.7% yield, Progress Energy Inc. (PGN) with a 1.9% yield and Southern Company (SO) with a 4.2%.
Conclusion: TE earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks TE as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $43.30 before TE's NPV MMA Differential decreased to the $2,800 minimum that I look for in a stock with 7 years of consecutive dividend increases. At that price the stock would yield 2.0%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,800 NPV MMA Differential, the calculated rate is 7.4%. This dividend growth rate is lower than the 15.0% used in this analysis, thus providing a significant margin of safety. TE has a risk rating of 1.75 which classifies it as a Medium risk stock.
TE's regulated electric and gas utilities provides the company with a steady cash flow. With a slow economy and high unemployment rate in Florida, the company will see little meaningful demand growth and will find it difficult to will meaningful rate increases from the regulatory bodies.
Once considered to be a good offset to its regulatory business, the company's unregulated businesses experienced volatility from commodity prices in recent years. In 2011, the stock benefited from strong international demand for coal.
The company is trading below my fair calculated value of $18.94, has decent dividend fundamentals and a good yield. As a result, I will add to my position as my allocation allows and conditions warrant.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in TE (5.7% of my High Yield Portfolio) and long in SO also in my High Yield Portfolio. See a list of all my dividend growth holdings here.
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Tags: [TE] [NEE] [PGN] [SO]
