F4Q09 Earnings Call

November 13, 2009 10:00 am ET

Electric, Gas and Water utilities have always been traditionally regarded as income stocks by investors. Their high current yields, and the relative stability of their distributions made them a preferred choice for investors who are seeking current income from their assets.

Utilities typically pay out a large portion of their earnings as dividends, which explains their slow dividend growth and high dividend yields. Most utilities operate as natural monopolies, which guarantees almost no competition in their specific geographic areas. It would be very costly to run two separate electrical grids, and such investment could take many decades to pay off. Thus utilities tend to generate stable earnings and revenues in any economic conditions, as people keep using water, gas and electricity in their daily lives no matter what.

The S&P High Yield Dividend Aristocrats is part of the S&P Dividend Aristocrats index series. This constituents in this index have followed a policy of raising dividends each year for at least 25 consecutive years.

In addition, all the constituents are members of the S&P Composite 1500 Index. The stocks are equally weighted and are re-weighted quarterly.

More than a third of the year has passed and the markets have rebounded nicely from their lows to turn a small profit on the year. It seems that the worst may be behind us when it comes to equity prices as many stocks have rallied more than 50% this year alone. Here at Bullish Bankers, we published a “Best Stocks of 2009″ newsletter at the beginning of the year, and our equities have performed very admirably when compared to our benchmark, the S&P 500. This article is designed to give a recap of how our equities have performed and give some additional explanation to our initial stock picking process. Through Friday, May 8th, our BB2009 Index has outperformed the S&P 500 by 11.51% on a geometric basis ex-dividend payments. Beside each of the sectors I have listed our three picks and the comparable ETF to show our relative performance on a sector by sector basis.

Consumer Discretionary - (APOL) YTD: -25.52%, (MCD) YTD: -11.69%, (COH) YTD: 25.32%, (XLY) YTD: 11.22%

Last week marked one of the worst times for dividend investors as several prominent companies cut their dividends significantly. The last bastion of companies standing, which were paying dividends such as US Bancorp (USB) and Wells Fargo (WFC), disappointed their shareholders with dividend cuts. In addition to that markets fell to fresh 12-year lows.

However there were several notable dividend increases from a few solid investor focused stocks. Companies that still continue raising their dividends show that they have enough cash flows to not only operate successfully but also appear relatively immune to overall disruptions in the economy.

2008 was truly a year of misery, suppression and depression in the financial markets. No sector held up well, as day after day seemed laden with negative news and panic. The utilities sector, typically seen as a safe haven, was anything but safe losing nearly 30% of its value in 2008. As the sector gears up for 2009, the stocks that should be successful are the ones that have the capacity to stand tall as the economy continues reeling; however, stocks in the utilities space need to maintain the potential to benefit from a turnaround.

WGL Holdings (WGL)

F1Q09 (Qtr End 12/31/08) Earnings Call

February 5, 2009 10:30 am ET

Investors occasionally use a stock trading technique called 'Buying Dividends,' which is the technique of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend. This technique generally works only in bull markets.

If you are interested in buying dividends, there are many stocks in many different industries to choose from. In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can't sell the stock until after the ex date. The actual dividend may not be paid for another few weeks.

The EIA currently provides monthly data on natural gas production and consumption through July. Based on the deviations in storage additions from our models, it appears that demand trends are weakening. In fact, in September our model suggests that natural gas demand fell by 1.74 BCF/d, or 2.62%. Since September, the economy has weakened substantially. For example, we had previously modeled that total 2008 electricity consumption would be slightly lower than in 2007. Recent data from the EEI shows electricity demand is down 4% YOY.

Our original estimate of –36% natural gas demand growth in 2009 now looks rather aggressive. Unfortunately, we will not have EIA demand data for October until mid-January. Based on other indicators of demand, such as capacity utilization, it is very safe to say that our previous 2009 demand projections (see our August 14th ‘Dirty Little Secret’ piece here on Seeking Alpha) are too high and future adjustments to our demand model will be to reduce estimated demand going forward.

WGL Holdings Inc. (WGL)

F4Q08 Earnings Call

The one bill that consumers will do everything they can to pay is their utility bill. Most people can't do without their electricity or natural gas. I previously wrote about the high yielding electric utilities; here is a list of the top natural gas utilities with high yields.

Amerigas Partners (APU) is a retail propane distributor structured as a limited partnership. The stock has a forward P/E of 10.9 and a yield of 8.6%.

F3Q08 (Qtr End 06/30/08) Earnings Call Transcript

August 5, 2008 10:30 am ET

In a helter-skelter second quarter, the Dow Jones Utilities Average was one of the top-performing major indices, with an 8.7% return that trailed only the NYSE Energy Index, according to a July 1 report from Bloomberg.

Compared to key industry, style and broad-market indices—such as the NASDAQ Composite, the Russell 2,000, the S&P 500, the S&P SmallCap 600 and the Dow Jones Industrial Average, the utilities sector stood out not just for its 2008 return, but for its limited retreat in the face of a tough market threatening to reach full-out bear status.

In my previous post I highlighted a sample list of the 20 highest yielding dividend aristocrats. Being fascinated with companies which have consistently increased their dividends for over 25 years, I wanted to examine a similar list, using the High-Yield Dividend Aristocrats this time. You could open it in google spreadsheets from here.

WGL Holdings, Inc. (WGL)

Q2 2008 Earnings Call Transcript

In our new book Yes, You Can Supercharge Your Portfolio, Ben Stein and I describe a series of investing stages. We hypothesize that most investors do not begin with an overarching theoretical framework for their holdings, but rather own what we term a “Glom” (for agglomerative) portfolio, made up of scraps of whatever looked good at the time they made the initial purchases. The problem with this “cats and dogs” approach is that there is no overall sense of what it means: the likely risks and returns are unknown, as is its suitability to meet the investor’s short- , intermediate-, and long-term goals. There is no match between assets and liabilities, or knowledge of whether the assets are invested in an efficient manner.

We recommend that investors in this position could “supercharge” their holdings by moving toward what we call a “Glob” portfolio – a great global glob of securities held in some conventional, common-sense allocation. This is essentially the John Bogle move: using index funds to pursue a low-expense, highly diversified set of holdings. This captures the free lunch of low expenses and a market-wide degree of diversification to improve the risk/return portfolio efficiency in harnessing the returns from global capital markets. For many investors, we think this would be a giant step forward.

WGL Holdings Inc.

F1Q08 Earnings Call

According to the Department of Energy's Energy Information Administration's release on January 8, "natural gas spot price averaged $7.17 per thousand cubic feet (mcf) in 2007, and is expected to average $7.78 per mcf in 2008, and $7.92 per mcf in 2009." Maybe it's time to take a closer look at natural gas, and propane utility stocks.

Amerigas Partners (APU) is a Pennsylvania-based retail propane distributor. The stock has a forward P/E of 14.29, a PEG of 3.78, and a yield of 6.8%.

To begin this topic, let’s see what dividend is. According to Investopedia, dividend is

Distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (i.e. dividends per share or DPS). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.