The recent Annual General Meeting (AGM) of Origin Energy Ltd (ASX: ORG) has reaffirmed why many investors consider the vertically integrated energy player to be a core blue-chip holding for their portfolio.
As the Total Shareholder Returns (TSR) over the past decade prove, Origin is a quality company that has provided shareholders with compound gains of 14.2% per annum. This is above the performance of the S&P/ASX 100 (Index: ^AXTO) (ASX: XTO) which has produced a TSR of 9.3%.
Here are four reasons Origin is deserving of its blue-chip status…
As the chairman stated, Origin has a three pronged strategy approach. First, the group aims to be a leader in energy markets – both generation and retail. When it comes to retail, Origin already boasts 4.3 million customer accounts and a 29% share of the eastern and southern states which is a strong position and provides great scale and leverage.
This brings us to the second prong of Origin’s strategy – to hold a significant position in natural gas and LNG production. While earnings are expected to dip in financial year (FY) 2015 due to lower output, shutdowns and a declining oil price, according to CEO Grant King FY 2016 is shaping up to produce “significant growth in earnings” for shareholders. This is thanks largely to the decision to invest in LNG.
This earnings growth is predicated on the soon-to-be-completed $25 billion Australia Pacific LNG Project (APLNG). With production at APLNG due to begin by mid-2015, a step-change in earnings is forecast.
The third prong to the strategy is for Origin to grow its position in renewable energy within the Asia Pacific region – this includes via the generation of geothermal, hydro and wind power. As I stated here, environmentally friendly or ‘green’ technologies are set to become increasingly important in coming years and early movers should be best placed to benefit from this future trend.
Capital Allocation & Management
Fourth, shareholders were also told that the board plans to maintain a dividend pay-out ratio of at least 60% of underlying profit going forward. With earnings expected to increase significantly, the 50 cent dividend should also increase post FY 2015. Assuming this scenario eventuates, the current 3.8% dividend yield may significantly understate the future yield.
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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd.
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