Building A 6% Income Portfolio For 2013 (Part 3b): Utilities 'Buy Zones'

 |  Includes: CNL, HE, SO, WEC, WTR
by: Parsimony Investment Research

Whether you are new to dividend investing or you are a seasoned pro, it's likely that your main goal is to build a long-term portfolio that generates consistent income over time with as little volatility as possible. That said, over the next few weeks we will continue publishing our 10-part series which should help you build your own 6% DIY Dividend Portfolio for 2013.

In part 1, we highlighted the investment plan and strategy for the portfolio and parts 2-10 will highlight each sector in the S&P 500, including high-rated stocks with in each sector that you should consider for your portfolio. Below is a schedule of the entire series. Please make sure to "follow" us so that you will be notified when each new article is published.

As we highlighted in Part 1, just because a stock has a high Parsimony composite rating, it doesn't necessarily mean that you should run out and purchase it that day. We believe that patiently waiting for a low-risk entry point for a given stock will drastically improve your long-term investment results. We call these entry points our "Buy Zones" and they are points at which long-term dividend investors should feel comfortable starting to build a position in the respective stocks. We focus on four key levels of support when determining a "Buy Zone":

  • Technical - Support from short and long-term trend lines (i.e, 10-week and 40-week moving average).
  • Volatility - Target correction levels based on historical volatility and maximum draw down.
  • Valuation - Support levels based on historical valuation multiple.
  • Yield - Support levels based on forward dividend yield.

We then average the low end and the high end of these key support levels to determine our target "Buy Zone."

It should be noted that this is how we determine our "Buy Zones," but there are no right or wrong answers here. We encourage investors to think hard about the key levels of support for their own stocks. What is the valuation level that you would feel comfortable buying a certain stock? What yield level makes sense for you? Also, you may want to add different parameters that fit your investment style better. The key takeaway here is that you establish a consistent process for determining a "Buy Zone."

Sample "Buy Zones"

Part 3a of the series highlighted some our top-ranked dividend stocks in the Utilities sector.

As a follow up to Part 3a, below are our target "Buy Zones" for each of these top-rated Utility stocks.

Wisconsin Energy (NYSE:WEC) has a current forward yield of 3.7% (including the company's recently announced dividend increase for 2013). The stock is hovering around the $37.00 level, which is where the 10-week and 40-week moving averages are converging. WEC is now down over 12% from its recent high and we believe that this is a great long-term entry point for investors.

Cleco Corp. (NYSE:CNL) currently has a forward dividend yield of 3.4%. The stock is down over 12% from its recent high and it is getting support around the $39.00 level. The 10-week moving average recently dipped below the 40-week moving average, but we believe that this crossover will be short-lived and we expect the stock's long-term uptrend to continue.

Aqua America (NYSE:WTR) is currently consolidating after a nice run from April through July. We believe that this is a "healthy" pullback for the stock and we would be a buyer on any further weakness. We expect WTR to get support at its 40-week moving average ($24.22) and investors should watch this level closely.

Southern Company (NYSE:SO) has one of the highest dividend yields (4.6%) in the utility space and we believe the stock is a great long-term buy right now. SO is down almost 13% from its recent high and don't expect the stock to trend too much lower from here.

Hawaiian Electric (NYSE:HE) has a very attractive 5.0% dividend yield and investors should consider starting a position in the stock at current levels. HE recently got support around the $24.00 level (which was the previous low from April 2012) and we believe that the stock will head higher from here. The company has paid a stable dividend since 1901 and it has delivered shareholders a very respectable 43% total return over the past 5 years.


Building a DIY Dividend Portfolio is a marathon, not a sprint. Don't put pressure on yourself to have a fully diversified portfolio overnight. The various sectors will offer good buying opportunities at different times; you just need to recognize them when they are there. That said, we believe now is a great time to add some Utility stocks to your portfolio.

Disclosure: I am long WEC, CNL, SO, HE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.