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Explorer ○○

Who's Buying Utilities?

In the current search for yield it seems to me that Utilities are providing the most reliable yields at the safest valuation level.

Anyone else coming to this conclusion? 

The rest of the market (with few exceptions) just seems lofty at the moment. 

The only other place I am finding comparable and safe yields is in some investment grade preferreds.  

 

 

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39 Replies
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Participant ○○○

Re: Who's Buying Utilities?

I have held utilities for years.  About a year ago, I consolidated two utility funds into Franklin Utilites, FKUQX.  While not a "utility" fund as such, I have held Lazard Global Listed Infrastructure, GLFOX since its inception.  When including toll roads, it is about 65% utilities with a high yield and strong international exposure. 

https://www.lazardassetmanagement.com/us/en_us/funds/mutual-funds/lazard-global-listed-infrastructur...

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Frequent Contributor

Re: Who's Buying Utilities?

I’ve been periodically adding to our positions in four utilities- Dominion Energy (D), Southern (SO), Duke Energy (DUK), and American Electric Power (AEP). Just try to pick up a couple of hundred shares whenever they drop below a certain price. All four have pretty solid dividends above 3%, with histories of raising their dividends reliably. Only one that hasn’t been bought in a while is AEP, it’s priced pretty “high” compared to the others. 

I like them as a part of my well diversified dividend growth portfolio. 

Win
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Explorer ○○○

Re: Who's Buying Utilities?

On Thurs 7/2 I added 70 shares of EVRG .  I sold 35 shares of the nuke operator with the nuclear waste overhangs to partially finance the buy.  On June 26 I had bought one share of EXC when the Div spiked a bit. So that share is now part of the 5 EXC I still own.  On June 11 I bought 145 shares of TRSWF.  It went ex the next day and I got the first dividend payment on Wed 7/1.  In my Roth I bought 2 shares of SJW on 6/25 and another 2 shares of it on 6/17.  I already sold 1 of the 6/25 shares for a +7% gain.  I added 1 share to SO on 6/25 but then on 7/1 sold 3 highest CB shares for a $6 gain, lowering the avg CB a bit. On 6/18 I added 2 shares to my WTRG position.  6/26 I added 5 shares of YLCO.  6/24 added 3 YLCO and 6/11 4  more YLCO.  6/15 I added back 1 share of DUK @$85.04 after dumping a share as the stock hit $90 on 6/5.  In May I started 2 shares of MDU.  I added 2 more on 6/11 and 2 more on 6/25. Added 3 shares NJR on 6/17.  Added 1 share of POR on 6/25 and 2 more on 6/26.  Added 2 shares to PPL on 6/26.  I added a  lot of small lots to some others in May as PNW, SJW, CWT, & LNT.   

I tend to trade my Utes vs prices sometimes getting to a point of ridiculousness when a UTE price goes so high as to push the current yield down to less than 2%.  Any ultra ST shares with plus 6% gains in the Roth and IRAs are fair game to be sold for cap gains generally equaling 1.5 to 2 times the annual dividend payout.  Mostly I try to buy back a few more shares on market volatility knocking back the prices. 

For my L/Cap UTEs I pretty much hold the LCB shares for years.  I took a 29% LT gain on the 35 shares of EXC I just sold.  Mostly I continue to focus on continuing discover and add Small Cap utes and a few Mid cap ones of less then $20 billion market Cap as well .  In the last Year I have had take overs of VECTREN, VALENER, and AGAAF, the last taken private as TriSummit Utilities.  Some thing is generating smoke at EVRG.  

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Participant ○○

Re: Who's Buying Utilities?

I have always been a big fan of them for income and have added two new ones this year: MDU and NWE. Always watching my so called big four: AEP, D, DUK and SO when they drop down to 5% range! Hope this year to add NEE to my growth line up. Hate to date myself, but bought my first share of SO in 1967 and DUK when they owned SE the gas company spin off!

Copie 

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Frequent Contributor

Re: Who's Buying Utilities?

Current Barron's has a feature on utilities. Summary:

"utilities [XLU -11% YTD; they fell hard and had weak rebound; with some dividends in question, utilities have sold off; changes are slow in regulated business; activists like Singer/Elliott have taken positions in EVRG, CNP, SRE, FE, NRG, etc; pg 19]"

YBB
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Explorer ○○○

Re: Who's Buying Utilities?

I’ve been adding to my four utilities, D, DUK, SO, AEP, on price dips. Solid, steady divy’s.

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Explorer ○○

Re: Who's Buying Utilities?

I have 8% of my portfolio in DUK, SO, D, and PPL.  I am looking at adding EXC to the mix.

Have owned AEP in the past but am waiting for it to come back to a 4% payout and then I will probably buy it again. 

 

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Participant ○

Re: Who's Buying Utilities?

Holding sizable positions in both UTG and XLU.

Added to both recently.  

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Participant ○○

Re: Who's Buying Utilities?

I do like utilities - good defensive play and the dividends are nice.  I hold DUK, PPL, SO and BEP.

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Explorer ○○

Re: Who's Buying Utilities?

We hold D, DUK and SO.   Like them so much have held the last two over a decade

stats

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Explorer ○○

Re: Who's Buying Utilities?

Anyone own AVA?  On my watch list.......

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Participant ○○○

Re: Who's Buying Utilities?

I have a nice slug of Utes: D, DUK, AEP, & LNT.  LNT is the local utility in Wisconsin and Iowa that is big on renewables, both wind (in Iowa) and solar plans in Wisco.

Headlines with D and DUK revolve around the Atlantic Coast Pipeline, and they just got a favorable Supreme Court ruling, though the environmentalists will continue to fight it tooth and nail as they would prefer no new natural gas plants to replace the old coal plants they want to retire.  So much for scientific rationality.  M* recently said that DUK's remaining capital to be deployed to the ACP is 4% of their capital budget over the next 5 years, so it wouldn't seem that a failure there should imperil the dividend I wouldn't guess, although it might make the grid less reliable and customers more susceptible to freezing in the winter, and slow dividend growth for a while.  These are all just surmises on my part, though.

AEP, though Texas turned down their share of the North Central Wind project, has a go on the project with the full 1,485 MW of wind generation in the other 3 states of Oklahoma, Arkansas, and Louisiana.  I recall CEO Nick Akins saying on a recent earnings call that if the project went through, it would be entirely incremental to their performance and would likely push them to the high end of their 5-7% annual growth projections.  

While it seems there is no guarantee on anything these days, if regulated utilities get in trouble with low power costs and the ability to invest for growth while helping the CO2 situation, then there is likely nothing safe.  At least IMO.  I have stakes in MSFT and AMZN for their utility-like qualities with seemingly still a massive secular growth opportunity in front of them in terms of the transition to the cloud, AI, the edge, etc.  Also telecom, health care, and staples.  Still looking askance at most REITs.  Covid is in the driver's seat there.

One additional thought in favor of Utes is that with a likely Biden win and, I fear, a Democratic sweep of the Senate, his increase in the corporate tax rate from 21% to 28% is likely to happen.

You may recall that utilities didn't get the benefit of Trump's corporate tax cut and had to pass the benefits on to their customers.  So it stands to reason that they also won't pay a price for the tax increase.  So they should be less impacted by anti-growth measures and the likely big increase in punitive regulation that is likely to follow political regime change, at least IMO.

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Frequent Contributor

Re: Who's Buying Utilities?

Vanguard VUIAX / VPU has a big cost advantage over funds charging 1+ %.

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Contributor ○○○

Re: Who's Buying Utilities?

@rumples  Seems strange seeing someone besides me mention a Franklin fund, but I am also a holder of Franklin Utilities.  I've always liked the sector, but because of various things happening to individual utilities, I've also felt more comfortable owning a mutual fund to help spread my risk.  Franklin Utilities is a plain vanilla utility fund that does a good job investing in utility stocks and has a very good long term record.  

I think the utility sector is a good long term buy and hold.

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Contributor ○○○

Re: Who's Buying Utilities?

VPU looks like a good dividend growth vehicle.


@chang wrote:

Vanguard VUIAX / VPU has a big cost advantage over funds charging 1+ %.



@chang wrote:

Vanguard VUIAX / VPU has a big cost advantage over funds charging 1+ %.


 

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Frequent Contributor

Re: Who's Buying Utilities?


@Gary1952 wrote:

VPU looks like a good dividend growth vehicle.


@chang wrote:

Vanguard VUIAX / VPU has a big cost advantage over funds charging 1+ %.



@chang wrote:

Vanguard VUIAX / VPU has a big cost advantage over funds charging 1+ %.


 


Lower ER doesnt guarantee higher TR. UTG has 2.0% ER and 10 yr TR of 13.38% while VPU with 0.10% ER has 10 yr TR of 11.61%.

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Participant ○○○

Re: Who's Buying Utilities?


@Intruder wrote:

@Gary1952 wrote:

VPU looks like a good dividend growth vehicle.


@chang wrote:

Vanguard VUIAX / VPU has a big cost advantage over funds charging 1+ %.



@chang wrote:

Vanguard VUIAX / VPU has a big cost advantage over funds charging 1+ %.


 


Lower ER doesnt guarantee higher TR. UTG has 2.0% ER and 10 yr TR of 13.38% while VPU with 0.10% ER has 10 yr TR of 11.61%.


I also consider VPU and XLU as good bogies to avoid as much individual stock risk.

I remember a long while back when people were talking about UTG being quite interested, but some talked about their propensity to have rights issues when at a premium as being a real problem and/or hassle.  

Have to admit I don't know what problems "rights issues" would cause or how to navigate them or if they are even a significant problem, but that kept me from dipping into UTG at the time.

Anyone care to expand on this issue?

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Participant ○○○

Re: Who's Buying Utilities?

Holy Cow!  Look at this headline for a lazy Sunday from the WSJ!

Companies Cancel Atlantic Coast Pipeline After Years of Delays

https://www.wsj.com/articles/companies-cancel-atlantic-coast-pipeline-after-years-of-delays-11593975...

Berkshire and BAM are apparently involved in a deal with Dominion to buy much/most of its midstream business.  Be interesting to see what this does to the dividend.

Makes you wonder if another pipeline will ever be built in the US, other than perhaps in Texas.  What about Line 3 in Minnesota for Enbridge.  Not sorry I'm not involved there.

Edited to add:

They (Dominion) will rebase their dividend and plan paying approximately $2.50 in 2021, compared to my previous forward estimate of $3.76 annually.  This works out to a roughly 33.5% cut.  Though they do expect dividend growth to pick up to 6% or so.

No word from Duke yet.

Truly nothing is safe or sacred these days, it seems.

https://news.dominionenergy.com/2020-07-05-Dominion-Energy-Agrees-to-Sell-Gas-Transmission-Storage-A...

Second edit:

Dominion has a conference call scheduled for tomorrow (Monday 7-6-20) at 9 am Eastern, 8 am Central.

https://investors.dominionenergy.com/events-and-presentations/event-details/2020/Dominion-Energy-Inv...

Dominion presentation 7-5-20:

https://s2.q4cdn.com/510812146/files/doc_presentations/2020/06/2020-07-05-DE-IR-investor-update-pres...

 

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Contributor ○

Re: Who's Buying Utilities?

Nothing seems safe anymore. 

I've had shares of D for years. Sizable unrealized capital gain locked up and had been holding because of that and the nice dividend I got quarterly. 

Now they're selling assets and cutting dividend. I hate to see what Monday brings. 

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