Sierra Pacific dividend not yet at issue

Tuesday, Feb. 22, 2000 | 10:46 a.m.

Investors in Nevada Power Co. parent Sierra Pacific Resources Inc., concerned about the beating the company's stock took last week, say they aren't worried about the dividends they receive on Sierra Pacific stock.

Joyce Newman, president of the Utility Shareholders Association of Nevada, said members of her organization flooded her office with calls after seeing their holdings evaporate in the wake of the declining stock price.

The issue's closing price Friday was $12.75, just 25 cents above the stock's 52-week low of $12.50. In August, the stock was trading in the $27 range.

"They're nervous because they're seeing their capital disappear," Newman said.

"Many people invested in this utility because it doesn't have a lot of the traditional risks."

Analysts say Sierra Pacific has turned into a riskier stock because of changes in Nevada's regulatory climate.

Sam Brothwell, a utilities analyst with Merrill Lynch & Co., New York, downgraded Sierra Pacific's stock rating from "buy" to "accumulate" in the wake of the Public Utilities Commission of Nevada's rejection of a $110 million rate increase for fuel costs Feb. 4.

Brothwell criticized Commissioner Don Soderberg's vote on the rate proposal as well as Sierra Pacific management for being overly optimistic.

"We agree that (Sierra Pacific) has been handed a bad deal," Brothwell said in a Feb. 9 report.

"While Nevada's regulatory process has created quite a bit of uncertainty, we believe Sierra Pacific hasn't adequately communicated the range of possible outcomes (particularly the down sides) to the 'Street,' forcing us to wonder whether signals from state officials were being misread," Brothwell said.

"We have long thought very highly of Sierra Pacific's management, but wish they'd anticipated and communicated the possible down sides here."

While the stock is shaky, Newman said investors haven't begun worrying yet about dividends.

An analyst with Legg Mason Inc. in Baltimore concurs.

"Shareholders already have been hurt by dividend cuts by the company back in the early '90s and recently when the merger was completed," said Ron Tanner, managing director of utilities research.

"I'd be surprised if they cut the dividend again, even as bad as the regulatory commission has treated them. I think they have enough cushion built into the dividend."

But that stated, Tanner said Sierra Pacific Resources and the PUC have been full of surprises.

"It's very unusual to have a regulatory commission take the position they did on a fuel and purchase power case," Tanner said. "There's no profit in this for the company. All they are doing is trying to recover their costs. It's a very routine type of filing for anybody in the industry and I haven't seen any of them get hacked like this one."

Sierra Pacific and Nevada Power have paid quarterly dividends for years, making the stock attractive to investors as an income source.

Prior to the merger of Nevada Power and Sierra Pacific last summer, Nevada Power was paying a dividend of $1.60 a year -- 40 cents per quarter. When the merger was announced, the company said it would reduce the dividend to $1 a year, or 25 cents per quarter, while details were hammered out.

Sierra Pacific paid an annual dividend of $1.28 in 1998 and $1.22 in 1997.

When the merger was announced, Sierra Pacific bought out small shareholders and offered Nevada Power shareholders one share of new Sierra Pacific stock for every share they owned. To compensate for the different values of Nevada Power and Sierra Pacific stock, Sierra Pacific shareholders were offered 1.44 shares of new stock for every old share they owned.

The company paid the last 25-cent dividend on Nevada Power shares last August, a month after the merger closed.

The most recent Sierra Pacific dividend authorized earlier this month and payable May 1 will pay shareholders 34 cents a share, up from 32.5 cents a share in the previous quarter.

Karl Wahlberg, a spokesman for Sierra Pacific, said the company's board of directors sets dividend policy and he did not want to speculate on what the board would do the next time it meets.