MGE Energy is a holding company with eight subsidiaries. Its main subsidiary is a utility that generates and transmits electricity to customers in the southern Wisconsin area. The subsidiary also distributes natural gas. Utilities are slow growth but highly stable businesses. They enjoy competitive advantages such as exclusive rights to supply power to select districts and long-term contracts with local governments. Long-term prospects of utilities are linked to the overall outlook of the local economies that they serve and the population growth rate, which often tends to be a low positive number.
Brief Background of MGE Energy
MGE Energy is believed to be more than 150 years old. In the year 1888, the company was renamed the Madison Electric Co. Then, in 1896, the company then became Madison Gas and Electric Co. In the year 2001, the company established another holding company by the name of MGE Energy. The main subsidiary of this new holding company was Madison Gas and Electric Co. Today, MGE Energy has a total of eight subsidiaries. These are Madison Gas and Electric Co., MGE Power, MGE Transco Investment, MGE Services, Central Wisconsin Development Corp., MAGAEL, and North Mendota Energy & Technology Park.
Utility stocks are generally considered to be defensive stocks. Demand for such stocks tends to go up during heightened volatility and times of crisis. MGE Energy’s stock has been range-bound for most of the pandemic. Its price has ranged in the $60 to $70 band for close to 10 months. The price of the stock was $64 at the close of the market on 28th January 2021. Dividends are an important metric for utility stock and MGE Energy currently trades at a 2.3% dividend yield. For comparison, Allete Inc, another utility company trades at a 3.96% dividend yield, with its stock closing at $62 on 28th January 2021.