Utility companies used to be seen as some of the most defensive businesses you could buy.
There are a number of utility companies on the ASX and it's worth considering whether these three are worth a buy:
Telstra Corporation Ltd (ASX: TLS)
Telstra is the telco giant of Australia, it has seen its share price fall from $6.61 to $4.18 over the past two and a half years. It has a huge, growing mobile customer base, which is the envy of other telcos. However, the problems are mounting in the broadband and NBN segment of the business which makes it hard to value Telstra's future potential.
Many investors are drawn to the trailing grossed-up dividend yield of 10.6% but I think it's unhealthy for the business to be paying out more than 100% of its profit. A cut to the dividend would make it less attractive for retirees. I'm avoiding Telstra for now, but if it went below $3.75 then I would seriously consider a small position.
Vocus Group Ltd (ASX: VOC)
Vocus has been a rollercoaster for investors. Things look promising for the long-term with potential cost reduction synergies and growth of NBN market share.
There might be good long-term potential at the current price but I think at the price of $3.50 it doesn't offer much short-term value considering all of the issues at the moment. It's good to know it's attracting attention from potential suitors but I wouldn't want to consider buying any shares unless the price was under $3.
The AGL share price has grown a lot since September's $17.18 up to today's $24.80. The impending energy price hikes could provide a big short-term boost to earnings.
There is a large take up of installing solar panels on homes which over the long-term will take away potential revenue from AGL. The increasing energy prices could quicken this desire for installing solar panels. I think there are better defensive companies than AGL on the ASX for the current price, as it's currently trading at 21x FY17's estimated earnings.
Foolish takeaway
There are potential pitfalls with all three of the above ideas. I like the idea of utility companies with recurring revenue but in my opinion the changing landscape of the NBN and energy production makes them a bit riskier than they first appear.
