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El Paso Electric Company has grown its renewable energy portfolio to a well-crafted portfolio aligned with EPA expectations. A high dividend yield with the potential for even higher yields later on give investors a fat dividend check to look forward to. Investors should consider El Paso Electric Company for a two-pronged investment in capital appreciation and capital preservation. After the recent poor performances in the overall stock market, investors are pining for higher returns. But before they run away from the stock market and look for higher returns, they should consider investing in small cap companies in the stock market. As a whole, small cap companies have generated higher returns than mid cap companies or large cap companies, and they have also outmatched various passive indices in return on investment generation as well. This is simply due to the fact that small cap companies have more room for growth than mid or large cap companies, and therefore this extra growth can generate higher returns for investors. Of course, this growth comes with its risks as well. Small cap companies are more likely to go belly up, which is why investors need some method of mitigating the risk involved with investing in small cap companies. One way investors can reduce the risk of investing in small cap companies is through the investing in small cap companies in stable industries. These industries can include industries such as utilities or industrials, given the inelastic demand and high diversification of these industries. The stability of these industries combine with the growth of small cap companies to yield a unique blend of risk and reward. Both capital preservation and capital appreciation are given by this mix, not to mention the steady quarterly paycheck that comes from dividend payouts. One such firms that offers this unique blend is the El Paso Electric Company (NYSE: EE ), a small cap utilities firm engaged in the generation, transmission, and distribution of electricity to a variety of customers in Texas and New Mexico. The Company owns several generation facilities, and it primarily distributes electricity to retail customers. The Company’s ownership interests in these generation facilities provide the Company with a unique blend of investments in various submarkets within the utilities industry, such as nuclear power, natural gas, and other areas of energy. Thus, the Company is well-diversified, providing investors with additional stability. Investors certainly should be pleased with how the Company has done over the years. Capital invested at the onset of calendar year 2011 would have generated a return on investment of about 70% over the course of five years. Although the overall rate of growth is a little slow, the Company’s stock has done nothing but grow steadily over this time period, essentially exchanging rapid, volatile growth for stable growth. Recently, the Company’s shares have begun to trade somewhat sideways as a result of macro instability in the emerging markets, which has affected not just the Company but the overall stock market as well; thus, this stagnation is not Company-specific. From a technical perspective, the 50-day moving average has danced around the 200-day moving average, but both indicators have moved in the positive direction for the past five years in a general manner. Most recently, the 50-day moving average has risen above the 200-day moving average, which could indicate near-term upside as the spread between these two indicators continues to rise. (click to enlarge) Source: Stockcharts.com But it’s not just the technicals that are painting a pretty picture. The Company’s fundamentals are fairly outstanding as well. With a dividend yield of about 3.2%, investors are having the opportunity of substantial capital appreciation (because the Company is a small cap company) as well as the opportunity for a stable, fat dividend check. In fact, the Company plans on growing this dividend yield to about 4 – 6% in the long-term, so investors could see their dividend checks swell even more. Besides this enormous dividend yield (given the Company’s size) and the opportunity for further dividend yield expansion, the Company also has fundamentals that indicate future long-term growth for the Company. In particular, the Company’s energy portfolio will consist of nuclear power, natural gas, and other renewable energy sources. As a result, the Company’s energy portfolio aligns with the interests of the EPA Clean Power Plan (CPP), which could benefit the Company in the long-term if it decides to either keep or grow this particular part of its energy portfolio. Furthermore, while top-line growth and margins have been relatively stagnant, what’s important to keep in mind is the Company’s retained earnings balance, which has steadily risen over the past several fiscal years. The rising retained earnings balance will help buffer dividend payouts, and it will help management reach its goal of a 4 – 6% dividend yield. Overall, we have a small cap utilities company with an extremely high dividend yield and an energy portfolio in-line with what the EPA wants. Investors should consider El Paso Electric Company for a two-pronged investment in capital appreciation and capital preservation. Scalper1 News
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