Utilities: Boring Dead Weights Or Solid Long-Term Investments?

Includes: D, ED, T
by: Arthur Yellin

I subscribed to Seeking Alpha a short time ago. I read with great interest the articles on Dividends & Income and the various strategies pursued by different investors.

At 66, I am predominantly seeking stable dividend income and reliable growth of my investments... as reliable as any other gamble in life! Over the years, I have always tried to balance some "blue sky" pure gambles with investments in companies I felt were "solid." The "blue sky" stocks usually end up in the toilet, but have occasionally done well. Nothing you can count upon. Employment (at the United States Food and Drug Administration) conflict of interest rules prohibited ownership of stocks in many companies and severely limited the industries in which I could invest.

In the 1980s, I worked for a self-made millionaire (back then, a million was a lot of money). One day while we were discussing investments, I mentioned to him that I had put a modest sum into AT&T (NYSE:T) stock. Before the breakup, T was a regulated utility. He scoffed, suggesting that utilities do not appreciate very well. While I have never calculated the actual appreciation, I believe that - counting dividends, stock splits and price appreciation - I averaged approximately 7-10% per year.

A bit later on in my career, I invested in what was then called Virginia Electric Power Company (VEPCO), which is today known as Dominion Resources (NYSE:D). I experienced similar long term growth with this stock. I sold my shares just prior to the last split and used the funds for some specific purpose. I bought back into the company following the split and have watched the price slowly return to earlier levels.

Finally, 19 years ago, I inherited shares in Consolidated Edison (NYSE:ED), another boring utility. For the first few years, I reinvested the dividends through the company DRP. After a few years, I started using the dividends to pay certain recurring bills. 19 years later, my original inheritance has more than doubled in value, plus I have taken out another 4-5% per year in dividends. Again, my average annual return has been approximately 7-10%.

I believe that there is a place for a reasonable proportion of these "boring" stocks in everyone's portfolio. Contrary to the suggestion of my then supervisor, I find that these stocks offer fairly reliable growth over the long haul correlated with a fairly modest level of risk compared with other investments. Yes, their income is regulated by local governmental bodies. Yes, it is highly unlikely that you will realize an enormous profit or a sudden windfall. On the other hand, in my opinion, it is highly unlikely that you will lose your initial investment. To the contrary, you will see steady growth exceeding many other investments over the long haul.

Disclosure: I am long D, ED, T. 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.

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