Spark Infrastructure Group (ASX: SKI) is a stock which many investors probably should know but don't. In fact many investors shun the utility sector altogether; writing it off as boring and slow growing. However, as Spark's 85% share price gain in the past five years shows, utility stocks can prove to be profitable. Spark has also smashed the 26% return from the S&P/ASX 200 Index (INDEXASX:XJO).
Just as the share price has been going gangbusters, so to have earnings. For the half year ending 30 June 2014, Spark has just reported a 17.1% increase in net profit to $89 million. The operator of electricity distribution assets also raised its distribution by 4.5%, bringing the unfranked interim payout to 5.75 cents per share.
Outlook
Spark owns 49% of the CitiPower and Powercor distribution networks in Victoria and 49% of the Power Networks business in South Australia. Spark also has a strategic 14% holding in DUET Group (ASX: DUE) which owns gas pipeline infrastructure.
Although Spark has produced impressive earnings growth in the past year, generally utilities are viewed as income stocks and often held in more conservative, defensive portfolios such as self-managed superannuation funds (SMSF).
According to company guidance, Spark should pay a full year distribution of 11.5 cents per share. On that basis, the stock is trading on an unfranked yield of 5.8%. Spark's management also provided distribution growth guidance of 3% to 5% for FY 2015.
Buy, Hold, or Sell?
Given the reliable nature of Spark's earnings and its potential to participate in both the NSW government's planned asset privatisation program and further industry consolidation in general, the stock looks a decent opportunity for conservative investors.
