2 overlooked high dividend utility plays

New Zealand companies listed on the ASX don’t get much of a rap from broker analysts in Australia. And that may an opportunity for retail investors like us to take advantage of.

In particular, there are two recently-listed energy companies in New Zealand that pay fully franked dividends and appear relatively cheap. And we’re not talking about small companies here either, so it’s not like they are flash in the pan, speculative stocks.

Mighty River Power Ltd (ASX: MYT) has a market cap of over NZ$3 billion, and generates an estimated 17% of all of New Zealand’s electricity, with more than 97% of that generated from renewable sources, including geothermal power stations, hydro and gas-fired power stations.

In the last half year report, Mighty River posted a 63.8% increase in profit to NZ$123.7m, and paid a dividend of NZ 5.2 cents. At the current price of $2.00, the annualised dividend yield equates to more than 5%. Add in a share buyback, and lower expected capital expenditure, and Mighty River looks attractive.

Meridian Energy Ltd (ASX: MEZCA) is New Zealand’s largest renewable energy producer, generating 100% of its electricity from wind, hydro and solar power. Meridan generates around 30% of New Zealand’s electricity, and reported a net profit of NZ$116.9 million in the last half year. The company also declared a 4.19 cent dividend partly franked (imputed in New Zealand) to 90%. Meridian is also expanding into Australia, operating the Mt Millar wind farm in South Australia and constructing another in Victoria. One thing to note is that Meridian is a partly paid security with a further NZ 50 cents due to be paid in 2015.

Given the renewable sources of energy both company utilise to generate electricity, and demand for cleaner energy sources rising, it appears both companies have excellent future prospects. New Zealand’s Contact Energy Limited (NZE: CEN) is also expanding further into renewable energy sources, and is partly owned by Australia’s Origin Energy Limited (ASX: ORG).

Foolish takeaway

While growth in earnings is likely to be fairly low, given both company’s dependence on New Zealand, Meridian and Mighty River are newly listed companies and should be able to generate significant cost reductions as they become more efficient. Now might be the perfect time to add these two utilities to your watchlist.

Every oil investor must read this!

Limited oil supply and growing demand mean oil prices are likely to rise over time. Position yourself to profit from this trend now, with The Motley Fool's brand-new FREE research report, "3 Oil Stocks to Send Your Portfolio Gushing Higher".

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.