In developing our overall investment strategy, utilities are long term opportunities for dividend payments and growth potential.
Right now, utility stocks are trading at lower prices and could offer capital appreciation potential as well as solid dividends for our income seeking portfolios. While this basket is outside of our "Retirement Strategy Portfolio", it can become a very fine source of growth and income as we move along with an overall investment approach.
I would look into creating a basket with the following utility stocks:
Duke (DUK): Price: $21.31/share Dividend Yield: 4.70% ESS Rating: Neutral
DUK has a market cap of $28 billion and a BV of $47 billion and even though they have faced increased costs and have debt, the 4.70% dividend is sweet enough to get paid to wait and the PPS is half of its 2001 high of $45.72. I believe the rewards outweigh the risks, and we can cash the quarterly checks at a really good entry price.
American Electric Power (AEP): Price: $41.37/share, Dividend Yield: 4.50%, ESS Rating: Bullish
AEP is well diversified, has plenty of nuclear, and has an operating cash flow of $4 billion. With a dividend payout ratio of only 45% they are well positioned to keep paying the dividends of 4.50% and maybe even increase them as we wait for the PPS to reflect a positive growth trend. I really like this one.
PPL Corp. (PPL): Price: $28.09/share, Dividend Yield: 5.00%, ESS Rating: Bullish
PPL is trading at a very attractive entry price right now. Down from its high of $46.96/share in 2008, with a sweet yield of 5.00% paid quarterly and very consistently, it pays us to wait for those nasty natural gas pricing headwinds to change. The PPL dividend payout ratio is a very healthy 54% so they are well funded and could increase dividends if they choose as well as continue to pay as they have.
My Opinion
We have our core portfolio for retirement, however, when opportunities present themselves to develop another "basket" of certain stock groupings to enhance our overall strategy, we could benefit with both income and growth.
Natural gas pricing has been beaten up and seems like it could continue for a few more years. As the USA becomes a huge exporter of natural gas (as I believe we will) that could change sooner. In that event these utilities have the pricing power and positioning to benefit.
I would consider adding this basket to "energize" any portfolio as the prices are right.
* Please do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any stock and is the opinion of the author.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AEP, PPL over the next 72 hours.
