Utility Sector May Lose Its Power Over Investors

Natural Gas Utilities

As opposed to the electric power utilities whose regulated base of business kept the majority of them from venturing too far into risky areas such as power trading, a number of high-profile natural gas companies -- most notably Enron, PG&E(PCG Quote), El Paso(EP Quote) (yield 2.29%), Williams Companies(WMB Quote) (yield .39%) and Dynegy(DYN Quote) (no yield) -- took a far more serious plunge into the deregulated waters, with disastrous results.

Danielle Seitz, utility stocks analyst at Maxcor Financial, says that a lot of the natural gas utilities are just now recovering from their disastrous attempts to become "power merchants" in the late 1990s and have spent the better part of two years cleaning up their balance sheets via refinancings and winding down unprofitable, noncore operations. During this time, the stocks have fallen out of favor in light of the scandals associated with the sector.

John Olson, an analyst at Houston-based investment bank Sanders Morris Harris, says the natural gas utilities have been forced by the ratings agencies and the regulatory authorities to scrub their balance sheets, but they still need more time to get their financial houses in order.

Olson highlights natural gas utility Oneok(OKE Quote) as one of the few companies that stayed away from "the fancy derivative deals of the 1990s" and is thriving. The company, which reports earnings April 30, has raised its dividend three times in the past five months, from 76 cents per year to 84 cents.

The yield on Oneok is now 3.83%. Not bad, but is it enough to keep investors from finally jumping on the bond bandwagon?