NuScale Power (SMR 3.99%) is an interesting company if you think nuclear power is going to be a key form of clean energy in the future. There's just one "minor" problem: The company doesn't have a functioning product yet.
If you like the idea of nuclear power, but prefer to own companies that are more developed, then you might want to consider Cameco (CCJ 2.52%) or The Southern Company (SO -0.22%). Here's what you need to know.
NuScale Power: Big potential, but not there yet
NuScale Power's hope is that it can build small nuclear reactors in a factory at relatively low cost. Those units will be modular and can be joined together in groups of up to 12 to create what would, effectively, be one large nuclear power plant.
The design of the small-scale modular reactors is expected to make it easy to put nuclear power plants where they are needed, whether in remote areas or in easily accessible population centers. And they are expected to be safer to operate than large nuclear power plants.
Image source: Getty Images.
That sounds like close to a perfect story. And if NuScale can pull all of this off, it will be a very attractive investment. The problem is that it still hasn't actually built a single small-scale modular nuclear power plant.
All that there is here is potential, and it is going to require good execution to live up to the opportunity management sees. For more conservative investors, that might be a bit too much risk to take on. Luckily, there are other ways to invest in nuclear power.
Cameco mines for uranium
At the heart of nuclear power is the fuel, which is usually uranium. Cameco is one of the largest uranium miners in the world.
After the Fukushima nuclear plant's meltdown in Japan, that was not a good thing, since uranium prices fell into a rut as the world seemed to be shifting away from nuclear power.
But it looks like this carbon-free energy source is seeing something of a renaissance. The price of uranium has dramatically increased in recent years.
There are two factors to consider here. First, Cameco's financial results will benefit from higher commodity prices, assuming that the price of uranium doesn't fall dramatically again. Second, Cameco's performance is highly reliant on uranium prices, even though it tends to make use of long-term contracts.
But it provides investors with a way to invest in the nuclear power sector. And it will benefit as new reactors, like the ones NuScale is trying to build, increase the demand for the nuclear fuel.
Southern Company has a nuclear foundation
If the thought of owning an upstart company with no product and/or a miner with exposure to commodity prices is too much risk for you, don't worry. You can buy Southern Company, which is a fairly boring utility.
At least it is boring today. Not too long ago, it was muddling through a major construction project that wasn't going very well. But it has now brought the Vogtle 3 and Vogtle 4 nuclear power plants in Georgia on line, essentially entering a new phase of its life.
For investors interested in nuclear power, Southern is a fairly safe way to get exposure. While it is true that nuclear power is only a small portion of Southern's overall generating portfolio, nuclear is now a solid and reliable foundation for the company as it looks toward a cleaner future.
And then there's the dividend, which has been increased for over two decades. The dividend yield is roughly 3.7% today. You can find higher yielding utilities, but the completion of the Vogtle project is expected to allow Southern to ramp up its dividend growth at some point in the next couple of years.
That could make the stock a worthwhile addition to a growth and income portfolio, not to mention for investors who just want to have a little exposure to nuclear power without taking on the risks of a company like NuScale.
You don't have to jump in
The big takeaway here is that NuScale might have a great idea, but it is still a very high-risk investment because it hasn't delivered on that idea just yet. Most investors will probably want to wait until it has hit a few more of its developmental goals before buying it.
But that doesn't mean you have to fully avoid the nuclear power space. You can buy uranium miner Cameco, which will benefit as more nuclear power plants increase demand for nuclear fuel. Or play it really safe and buy a dividend paying utility like Southern that includes nuclear power (two new plants in this case) in its fleet of assets.
