DPL Raises Dividend - Analyst Blog

DPL Inc. (DPL) increased the quarterly dividend on its common stock from $0.3025 to $0.3325 per common share. This action increased the annualized dividend from $1.21 to $1.33 per common share. Over the years, management of DPL has rewarded shareholders by returning a substantial portion of its free cash flow through incremental dividends.

DPL has a strong balance sheet among its peers with a low debt-to-capitalization of 42.9% at the end of the first nine months of 2009 (Zacks industry average was 93.2%). The company continues to be a strong cash generator with annual operating cash flows of approximately $331.6 million in the first nine months of 2010.

The company closed the first nine months of 2010 with cash and cash equivalents of $139 million, short-term investments worth $48 million and a revolving credit facility of $420 million. The company reduced its long-term debt level through the first nine months of 2010 to $926.4 million versus $1.2 billion at fiscal-end 2009.

DPL's stable and regulated electric power operations generate a relatively stable and growing earnings stream. Also, DPL's power purchase contracts feature fixed prices, which protect against price escalations and help stabilize earnings.

Future growth will be guided by improved plant operations and by the installation of emissions reduction equipment (scrubbers) that optimize coal use at its generation plants. The company plans to invest approximately $760 million on transmission cum distribution projects during 2010 – 2012.

Dayton, Ohio-based DPL Inc. sells electricity through its principal subsidiary Dayton Power and Light Company. DPL owns approximately 900MW of natural gas and diesel peaking generation capacity, and 2,800MW of coal-fired generation capacity. DP&L is an electric utility with more than 500,000 residential, commercial, industrial and governmental customers in its 6,000 square-mile service area in west-central Ohio.

The other subsidiaries of DPL Inc. are DPL Energy, LLC (DPLE) and DPL Energy Resources, Inc. (DPLER). DPLE operates merchant peaking generation facilities and DPLER markets wholesale power generated by DPL's power plants.

DPL's consistent performance across its solid base of stable utility operations, higher rates, regulatory approval for recovery of fuel cost, strong balance sheet, an above industry average dividend yield and a relatively cheap earnings-based valuation support our bullish outlook for DPL.

Going forward, lackluster electricity sales growth could hamper DPL's earnings prospects. Trepidations in the economy resulted in lower retail sales volume in fiscal 2009 of 9.3%, compared to fiscal 2008. According to the Energy Information Administration (EIA), total electricity consumption in the U.S. is estimated to remain stagnant in 2011 compared to the current year's level dampening the prospects of the company in the near-term.

Also, according to the U.S. Bureau of Labor Statistics, Ohio's unemployment rate in October 2010 was one of the highest in the nation at 9.9%, versus the national unemployment rate of 9.6%. Thus in the near-term we maintain our cautious stance on the stock with a market Neutral recommendation, in line with peers like Westar Energy Inc. (WR) and Portland General Electric Company (POR).

 
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