Alliant Energy Corporation (LNT) Joins The S&P 500 Club

Regulated electric and natural gas utility Alliant Energy Corporation (NYSE:LNT) joined the S&P 500 cohort on Jun 30, 2016, replacing AGL Resources (NYSE:GAS) Inc. The S&P 500 currently has 28 utility companies including Alliant Energy. The mature utility sector has in fact outpaced the S&P 500’s returns so far this year. The Dow Jones Utility Average (DJU) is up 23.9% year to date (till July 1, 2016) compared with the S&P 500 return of 2.9% over the same time frame.

Alliant Energy’s shares appreciated 31.7% year to date to $40.39. The average trading volume in the last three months is nearly 2.05 million. Alliant Energy, which replaced AGL Resources in the S&P 500 after the latter was acquired by Southern Company (NYSE:SO) , has a current market cap of $9.17 billion and looks to be a worthy replacement.

Alliant Energy’s future earnings growth looks attractive due to strong state economies in its service areas and compelling prospects for new electric generation capacity. Its geographic location and favorable regulatory developments bode well for long-term earnings growth. Alliant Energy currently targets annual earnings growth between 5–7%.

The regulated nature of Alliant Energy’s operation provides strong earnings visibility, which has enabled the company to increase the annual dividend rate for more than a decade. The company has paid out dividends since 1946 without fail. Another utility, Aqua America (WTR), has paid dividends to its shareholders over the past 71 years and increased the dividend rate 25 times in the last 24 years.

Alliant Energy has plans to invest nearly $5 billion over the 2016–2019 time frame, with nearly $1.16 billion of capital expenditure planned for 2016. These investments will further strengthen the company’s operations. Adding more renewable energy to its portfolio will help in achieving regulatory compliance.

Other Utility Movement in S&P 500

The S&P 500 members keep changing depending on the performance of the stocks. On Mar 3, water and wastewater supplier American Water Works Company Inc. (NYSE:AWK) took its position in the S&P 500 group displacing CONSOL Energy Inc. (NYSE:CNX) .

Massive infrastructural investments are required to upgrade and maintain the water utilities, as old and soiled water pipelines are quickly nearing their effective service life. An Environment Protection Agency report indicates capital investment of $384.2 billion will be required to upgrade drinking water lines and $298.2 billion for wastewater lines.

Hence, water utilities have immense opportunity to expand their regulated operations. On this basis, we might see more water utilities joining the S&P 500 list given their strong performance and fundamental strength, edging out the weak performers from the group.

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