It has become harder and harder for income investors to find reasonably safe investments that pay a reasonable dividend (or interest).
In the last three months, while virtually all income producing vehicles we follow have gotten murdered, the Electric Utilities sector has been fairly insulated from the devastation.
We follow only a small universe of these utilities as we look for the highest yields in the sector which also provide a reasonable level of safety.
In particular, we follow Great Plains Energy (GXP), Consolidated Edison (ED), Pinnacle West Capital (PNW) and Progress Energy (PGN). The common shares of these companies sport current yields of 8.9%, 6%, 7.2% and 6.4% respectively. Certainly these are very respectable yields with companies that, at this moment, provide relatively good safety. Additionally, each of them has options available for those that wish to sell some covered calls for added income.
Now that we have listed these companies we wish to share our belief that while these stocks have not been 'hit' yet, unless we see a vast improvement in the economy in the next couple of months there will be substantial pain for those owning these companies as we expect falling profits and potential dividend cuts. In particular we believe that the consumer is in such poor shape that the write offs the utilities will take will be substantially higher than they have ever been before. Anecdotal evidence already says that the number of consumers charging their utility bills to their credit cards is skyrocketing.
The bottom line is that if you own electric utilities be vigilant; if you don't own them, consider waiting until seeing what the spring brings for the economy.
Disclosure: Author has a long position in GXP, no positions in ED, PNW, PGN.