Inflation seems tamed as the core inflation rate is growing a mere 1.1 percent annually and consumer prices rose only 2.1 percent over the year according to the data out in February. Even so, inflows of cash have been gushing into funds that invest in customary inflation plays. These funds include Treasury inflation-protected securities, stocks, and commodities.
Morningstar's Editorial Director Kevin McDevitt, CFA, stated (pdf):
"Long-term flows roared back in January with nearly $30 billion in estimated inflows, reversing December's $10.6 billion outflow. U.S. Stock funds led the surge with nearly $16 billion in inflows, with U.S. Stock exchange-traded funds collecting another $10 billion. This is the biggest haul for open-end U.S. Stock funds since February 2006 and the best January since 2004. It also reverses eight consecutive months of outflows. Conversely, nearly $76 billion fled money market funds, the majority of which left taxable funds. This was the largest money market exodus since April 2010."
With smart money seemingly wagering inflation is on the horizon, which equities do we choose to fortify our portfolios? Which types of stocks perform best in a high inflation environment? My research leads me to several choices. At the top of my list are high yielding dividend utility stocks. Utility stocks due to the fact they have product pricing power. We all have to have electricity regardless of the price. And secondly, regarding high yield dividend stocks, the dividends paid may outpace the coming rise in inflation and take some of the bite out of inflation-related performance suffering.
Kate Warne, Edward Jones investment strategist said on CNBC:
"Payouts issued by the S. & P. 500 (SPY) dividend paying companies have grown at an annual rate of 5.6 percent outpacing the 3.7 percent inflation rate during the period. There is another reason to favor dividend payers. Businesses that stand to thrive during inflationary periods are those that have the power to pass along price increases to their customers. And companies with growing dividends often have that ability. When you think about it," she said, "companies that have pricing power, and are thus able to maintain their profit margins, will be able to continue to raise their dividends."
These five high yielding dividend utility stocks all have an average dividend yield of greater than 5%. I believe these stocks may provide a reasonable return and some protection from an inflation rich investing environment. Now that we have cut the wheat from the chaff it's time to perform a more in-depth review. Please use this as a starting point for your own due diligence.
Ameren Corporation (AEE) - Through its subsidiaries, operates as a public utility holding company in Missouri and Illinois. It engages in the rate-regulated electric generation, transmission, and distribution businesses; rate-regulated natural gas transmission and distribution businesses; and merchant generation businesses. The company was founded in 1881 and is headquartered in St. Louis, Missouri.
Ameren reported first quarter earnings on May 5th. Its net income declined 30 percent in the first quarter as electricity and natural gas sales fell due to a milder winter and storm-related expenses rose. For the quarter that ended March 31, Ameren reported net income of $71 million, or 29 cents a share, compared with net income of $102 million, or 43 cents a share, in the first quarter of 2010. Excluding one-time items, the St. Louis Company said it earned $60 million, or 25 cents a share, in the first quarter. Revenue fell 1.9 percent to $1.9 billion.
AEE's dividend statistic details are as follows; 5 year dividend growth rate is -9.52%, current dividend yield 5.29%, annual dividend $1.54, and last quarter dividend of $0.39. AEE has a median price target of $26.25 by six brokers and a high target of $28. The last up/downgrade activity was on Jan 26, 2011 when, Wunderlich initiated coverage with a Sell rating. Please review the illustration for AEE's summary and key statistics.
Duke Energy Corporation (DUK) - Operates as an energy company in the Americas. It operates through three segments: U.S. Franchised Electric and Gas, Commercial Power, and International Energy. The U.S. Franchised Electric and Gas segment generates, transmits, distributes, and sells electricity in central and western North Carolina, western South Carolina, southwestern Ohio, Indiana, and northern Kentucky; and transports and sells natural gas in southwestern Ohio and northern Kentucky.
On January 10, 2011, Duke Energy and Progress Energy announced an agreement to combine their companies. Subject to shareholder and regulatory approval, this merger will create the nation's largest utility, with more than 7 million customers in six service territories. It is targeted to close by the end of 2011. See chart below provided by Duke Energy website regarding combined company.
DUK's dividend statistic details are as follows; 5 year dividend growth rate is -3.68%, current dividend yield 5.24%, annual dividend $0.98, and last quarter dividend of $0.25. DUK has a median price target of $18 by 11 brokers and a high target of $19. The last up/downgrade activity was on Jan 11, 2011 when, RBC Capital Markets downgraded the company from Outperform to Sector Perform. Please review the illustration for DUK's summary and key statistics.
The Empire District Electric Company (EDE) - Together with its subsidiaries, primarily engages in the generation, purchase, transmission, distribution, and sale of electricity in Missouri, Kansas, Oklahoma, and Arkansas.
Founded in October 1909 as a part of Cities Services Company, The Empire District Electric Company is an investor-owned, regulated utility company, based in Joplin, Missouri, that provides electricity, natural gas (through its wholly owned subsidiary, The Empire District Gas Company), and water service, with approximately 215,000 customers in Missouri, Kansas, Oklahoma, and Arkansas. A subsidiary of the company also provides fiber optic services. Empire has been listed on the New York Stock Exchange under EDE since 1946 and has continuously paid dividends since 1944.
EDE's dividend statistic details are as follows; 5 year dividend growth rate is 0.00%, current dividend yield 5.68%, annual dividend $1.28, and last quarter dividend of $0.32. EDE has a median price target of $22.50 by 2 brokers and a high target of $23.50. The last up/downgrade activity was on Apr 30, 2010 when, Jefferies downgraded the company from Buy to Hold. Please review the illustration for EDE's summary and key statistics.
Otter Tail Corporation (OTTR) - Engages in electric and nonelectric operations in the United States and internationally. It operates in six segments: Electric, Plastics, Manufacturing, Health Services, Food Ingredient Processing, and Other Business Operations. The Electric segment includes the production, transmission, distribution, and sale of electric energy through coal, wind, hydro, natural gas, and oil in Minnesota, North Dakota, and South Dakota.
On May 9, 2011 OTTR announced financial results for the quarter ended March 31, 2011. Consolidated revenues from continuing operations were $286.7 million compared with $243.7 million for the first quarter of 2010. Consolidated operating income from continuing operations was $13.2 million compared with $14.0 million for the first quarter of 2010. Consolidated net income from continuing operations was $3.9 million compared with $3.3 million for the first quarter of 2010. Consolidated net income, from continuing and discontinued operations, totaled $5.7 million compared with $4.7 million for the first quarter of 2010. Diluted earnings per share from continuing operations totaled $0.10 compared with $0.09 for the first quarter of 2010. Diluted earnings per share, from continuing and discontinued operations, totaled $0.15 compared with $0.13 for the first quarter of 2010
John Erickson, president and chief executive officer said:
"For a third consecutive quarter, we witnessed the impact of an improved economy within several of our operating segments. During the first quarter of 2011, four out of six operating segments showed improved performance compared to the same period last year. As a diversified company, we are pleased to have sustained this momentum into the new year."
OTTR's dividend statistic details are as follows; 5 year dividend growth rate is 1.22%, current dividend yield 5.22%, annual dividend $1.19, and last quarter dividend of $0.30. OTTR has a median price target of $22 by 3 brokers and a high target of $29. The last up/downgrade activity was on Apr 15, 2011 when, DA Davidson upgraded the company Underperform to Neutral. Please review the illustration for OTTR's summary and key statistics.
Pepco Holdings, Inc. (POM) - Operates as a diversified energy company. It operates in two divisions, Power Delivery and Competitive Energy. The Power Delivery division engages in the transmission, distribution, and supply of electricity; and the delivery and supply of natural gas. This division owns and operates a network of transmission or distribution facilities comprising wires, substations, and other equipment.
Pepco announced Friday that first-quarter profit improved 78 percent despite a decline in revenue, as the utility company cut fuel and purchased-energy expenses. Net income was $64 million, or 28 cents per share, compared with $36 million, or 16 cents per share, a year earlier. Excluding discontinued operations, the company earned 27 cents per share. Revenue fell 10 percent to $1.63 billion from $1.82 billion. Spending on fuel and purchased energy fell to $995 million from $1.29 billion a year earlier. The company left unchanged its forecast of adjusted earnings this year between $1.10 and $1.25 per share. Pepco said it made $97 million in capital improvements to its electric system during the first quarter, up from $65 million a year earlier. It said the money went to increase reliability. The company's affiliates have about 1.9 million electric and natural gas customers in Maryland, the District of Columbia, Delaware and New Jersey.
POM's dividend statistic details are as follows; 5 year dividend growth rate is 1.55%, current dividend yield 5.52%, annual dividend $1.08, and last quarter dividend of $0.27. POM has a median price target of $18.25 by 5 brokers and a high target of $21. The last up/downgrade activity was on Sep 29, 2010 when, Oppenheimer initiated coverage at Perform. Please review the illustration for POM's summary and key statistics. Information was gathered from CNBC, Yahoo Finance and respective company websites.
Information was gathered from CNBC, Yahoo Finance and respective company websites.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AEE, DUK, EDE, POM, OTTR over the next 72 hours.