Given the current financial and economic environment most economists (including our federal reserve Chief Ben Bernanke) believe that our present recession will last well into 2010. Therefore, it’s long overdue for individual investors to build a healthy defensive stock portfolio.
One of my top picks is Piedmont Natural Gas Co (NYSE:PNY). PNY is a $2.0bn market cap energy service company that distributes and transports natural gas to individual and business customers in Tennessee, North Carolina and South Carolina.
My investment thesis is that PNY is a defensive name with positive, yet conservative, earnings growth. 2007A EPS was $1.40, 2008A EPS was $1.53 and given the current economic environment earnings should grow in the mid single digits for 2009. In each of the jurisdictions it serves, the company faces a favorable regulatory environment that will help continued sustained stable earnings growth.
A major concern for investors of mid to large cap non-growth companies is their current and future pension obligations. When PNY reported 2008 full year, it indicated that its O & M expense (operation and maintenance) in FY08 decreased primarily because of lower pension expense accruals. Per its 10k, it looks like the company will have manageable and conservative growth in its 2009 and 2010 pension obligations.
One of the factors in picking a defensive stock is a solid and sustainable dividend. 2007 dividend rate was $.99, 2008 was $1.03 and there is no indication from the full year reports that the dividend will change in 2009. The dividend yield in 07 was 3.6%, 08 3.7% and my contention is that it won’t change in 09.
2009 is probably not going to be a banner year for stocks; it sure hasn’t started out that way. Hunker down, be conservative and get paid 280bps over 2 year treasuries to wait for better times.
Disclosure: I don’t own PNY (nor do any of my family members) and I do not have a business relationship with the company.