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AusNet Services shares soar on dividend outlook

Credit: GotCredit

Electricity and gas retailer AusNet Services (ASX: AST) posted an adjusted net profit of $214.9 million on revenues of $1,068.9 million for the half year ending September 30, 2015.

The business adjusted the profit result to back out one off items booked over the period relating from a corporate restructure and one off tax impacts over the period. The adjusted net profit was still up 31% over the prior period, with adjusted earnings up 14.7% to $650.4 million.

Strong growth in electricity distribution revenue was the result of regulated price increases and a cooler winter compared to the prior year, which presumably created a greater demand for heating.

Electricity distribution revenues totaled $530.6 million, up 18.5% over the prior corresponding period (pcp). Gas revenues also benefited from the cooler winter, up 11% over the pcp to $130.9 million.

The stock is up nearly 9% over 2015 as investors continue to chase defensive earnings and yield in today’s wickedly low cash rate environment.

Income investors will be keen to know that the company expects to pay out a fully franked 8.53 cents per share in financial year 2016, with 4.265 cents per share available to shareholders on the register as at November 20.

Selling for $1.45 the group is on a juicy forward yield in the region of 5.9%, which would be closer to 8% when grossed up to include the franking credits.

The stock is up 3.2% today and may edge marginally higher given the defensive earnings and near-term outlook for little change in cash rates through 2016.

Others worth a look for income seekers in a similar space include APA Group (ASX: APA) and AGL Energy Ltd (ASX: AGL).

The only potential fly in the ointment for utility-focused equity investors in Australia is if US economic growth is stronger-than-expected through 2016. This may trigger a net move out of risk assets like high-yielding equities with reliable long-term income streams into low-risk government debt that will offer more attractive returns slightly lower down the yield curve.

In fact, if you’re looking for income, it might be worth considering stocks with potential for a little growth as well….

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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