Ameren: This Utility Is A Good Stock To Accumulate Today (NYSE:AEE)

Ameren Corporation (NYSE:AEE) is an American regulated electric and natural gas utility that provides services to much of Illinois and Missouri. The company does not provide service to Chicago, however. The utility sector has long been one of the favorite sectors for conservative risk-averse investors, especially retirees. There are a few good reasons for this, including the fact that most electric utilities enjoy remarkably stable cash flows that are largely independent of fluctuations in the economic environment. This is a quality that could be very desirable right now, as the near-term future of the economy is rather uncertain.

Ameren has historically also boasted a fairly high dividend yield, which today sits at 3.04%. That is much higher than the yield of the S&P 500 Index (SP500) and the company’s penchant for increasing it regularly means that the effective yield on cash that an investor receives will be considerably higher after holding the stock for a few years. Ameren also has an attractive valuation at the current price, which is always nice to see.

Admittedly, this thesis is pretty similar to the one that I presented the last time that I discussed this company, but that was a few months ago so a few things have changed. Therefore, let us revisit our thesis and see if it makes sense to continue accumulating shares today.

About Ameren Corporation

As stated in the introduction, Ameren Corporation is a regulated electric and natural gas utility that serves most of the state of Illinois, other than Chicago. The company also serves the city of St. Louis, Missouri, and the surrounding area:

In addition to its electric utility services, the company provides natural gas service to homes and businesses within parts of its service territory. Its natural gas business is somewhat smaller, however. This is evidenced by the fact that the company only has 900,000 natural gas customers compared to approximately 2.4 million electric customers. This is something that may be attractive to some investors.

Over the past few years, politicians and others in the media have been making claims about how natural gas will soon become obsolete as people convert to electricity for all of their energy needs. This claim is completely nonsensical because natural gas is much more economically sensible as a source of heat. I explained this in several previous articles (see here and here). In short, natural gas is more efficient at creating heat than electricity so it is cheaper to use for such purposes. That is almost certainly going to be a very important consideration for people of limited means, who are very unlikely to spend a considerable amount of money to convert a space heating system to electricity from natural gas only to have their heating bills go up.

With that said, electric utilities do tend to be more stable financially from quarter to quarter. This is because electric consumption does not exhibit the seasonal variation that natural gas does. While we do see higher electric usage and bills during the summer months due to air conditioner use, not all homes have air conditioners and households continue to use electricity during the cooler winter months. As such, while bills do vary somewhat, electric utilities tend to have very stable quarterly revenue and cash flows. This extends somewhat to Ameren Corporation, as its electric utility accounts for more than double the customer base of its natural gas utility. Here are the company’s quarterly operating cash flows for each of the past eleven quarters:

We do still see some fluctuations, but for the most part, the company’s cash flows are usually between $400 and $750 million during each and every quarter. This is much less variation than we see with a pureplay natural gas utility like ONE Gas, Inc. (OGS), which I discussed yesterday. We also see that the COVID-19 pandemic, the raging inflation of 2021, and the weakening economy from the rising interest rates that started in 2022 had no real impact on Ameren Corporation’s cash flows. This provides evidence for the point that I have been making about the company’s cash flow stability and resistance to economic events.

The reason for this overall stability should be pretty obvious. Ameren provides a product that is typically considered to be a necessity for this day and age. After all, how many homes do not have electric service and heat for cold days? Due to this necessity status, most people will prioritize paying their utility bills ahead of discretionary spending during times when money gets tight. As I pointed out in a recent blog post, the high inflation that has been plaguing the economy has made money very tight for the average American household as evidenced by the…