Dividends and Taking a defensive approach

When markets are volatile or when they look like they are becoming bearish, you need to place your money into stocks that do well no matter the economy. The stocks of utilities and telecommunications come to the forefront. If you wish there are SPDR indexes of the companies or you can pick individual ones to put on your radar and possibly buy.

In late March, Noor Hussain an analyst for Inovestor Inc examined some companies in the utilities and telecommunications sector and came up with the following. He first started narrowing the field with the following criteria:

Market capitalization greater than $10 billion

Positive 12 month change in economic value (EVA) metric. A positive number means the company’s profits are increasing at a faster and greater pace than the costs of capital. To determine the EVA = net operating profit after tax – capital expenses

Positive 12 month change in the economic performance index (EPI) and a current EPI greater than one. The ratio is the return on capital to cost of capital.

Future growth value to market value ratio (FGV/MV) is between 40% and minus 70%. The ratio represents the proportion of the market value of the company that is made up of future growth expectations rather than the actual profit generated. The higher the percentage, the higher the baked-in premium for expected growth and the higher the risk.

Company                          Mkt Cap     EPI    EPI 12M  FGV/    EVA 12M   1 Yr           Div

$ bill                       Chg %      MV %   Chg %     Reurn %   Yield

Verizon Comm                246.930     2.85     130.2        -53.5       422.1         19.2           4.2

NextEra Energy                 92.698     2.09       98.5        –  5.4        249.2        23.4            2.6

Duke Energy                      65.938      1.08         4.3           0.2          15.9         19.0           4.2

T-Mobile                              61.128      1.76       65.5        -16.3       297.5         19.1           0.0

Dominion Energy              51.429      1.32        18.6      –   0.7          59.9          0.0            4.7

Exelon                                  48.671      1.41        39.9      -38.1          156.3        31.2          3.1

American Electric               41.995     1.26          4.9           6.4            1.1         23.7           3.4

Public Service Enter            30.053    1.2          47.0           18.9        126.8        21.4          3.5

Consolidated Edison            27.256    1.27        13.7            8.3           39.9        10.1          3.7

WEC Energy Group              25.030    1.54        27.1           0.5              81.8       27.3         3.2

The other utilities listed were: Eversource Energy, CenterPoint Energy, Atmos Energy, Alliant Energy and Pinnacle West Capital Corp

Linking to dividend paying stocks, it is hard not to have a utility in your portfolio because the regulators increase prices every year which means the company has the ability to keep earning money and paying to shareholders. As long as the company does not let is costs get out of hand, it is a good investment.

On a side note: in late March the state of California generated 59% of its electicity needed by solar panels. Solar panels cost less than nuclear plants.

There are more questions than answers, till the next time – to raising questions.

 

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