Supply and demand is what drives the global economic
Imagine owning a company whose products and services have
nearly guaranteed steady demand and government-regulated supply.
Add in the beauty of government-supported monopoly-like power and
steadydividend yields -- and you've attained investor
Although these companies may be considered boring and
overlooked by investors seeking rapidcapital appreciation , they
remain an ace in the hole for long-termstock investors.
If you haven't guessed, I'm talking about utilitystocks .
Despite a recent pullback, these consistent and proven
dividend machines are ideal "buy" candidates for any long-term
With this in mind, here are my two favorite utility
Southern Co. (
A leading U.S. provider of electricity, this large-cap public
electric utility has amarket capitalization of more than $38
billion and boasts a price-to-earnings (P/E ) ratio of nearly 19.
Southern has subsidiaries in four states, including Mississippi
Power, Georgia Power, Gulf Power and Alabama Power.
The company'sbeta is -0.10, meaning it's nearly as volatile as
the overallmarket , and its stock currently yields more than 4%
annually. Profitability has increased from close to $2 billion in
2010 to more than $2.1 billion in 2012, indicating an enhancement
of more than 4%.
Southern has plans to invest $14 billion over the next several
years to increase transmission and power-generating capacity. In
addition, the company is targetingearnings growth of 5% to 7% for
each of the next five years.
What I like best about this utility is the fact that Southern
investors are enjoying much faster dividend growth than the
majority of other utilities. The company has grown at an
astounding rate of 40% over the past 10 years, yet thepayout
ratio remains at less than 30% ofcash flow , which means future
dividend growth is probable.
Presently throwing off a forward annualyield of 4.6%, this
utility is an excellent prospect for long-term investors.
Duke Energy (
The largest electric company in the United States, Duke provides
electricity to more than 7 million homes in the Carolinas, the
Midwest and Florida. The company also provides natural gas
distribution services in Ohio and Kentucky, as well as diverse
power generation and renewable-energy assets in Latin America and
Over the past three years, Duke's net profits have increased
from roughly $1.3 billion in 2010 to more than $2.1 billion
thisyear . The company currently boasts a beta of 0.08 and an
annual yield of 4.5%.
Risks to Consider:
Utilities are widely considered to be among the safest,
best-yielding stockinvestments available. However, a recent study
has made it clear that utility stocks may actually be more
volatile, as a whole, than the overall stock market.
While this in no way negates the power of utility stocks as
dividend-producing machines, it shows that utilities may share
similar risks as the rest of the stock market. As always, choose
your investments carefully and be sure to diversify.
Action to Take -->
On the daily technical chart, Duke and Southern appear nearly
identical. They have followed a lockstep pattern of falling from
the highs, breaking below the crucial technicalsupport of the
200-day simplemoving average , then bouncing back aboveresistance
, setting up an ideal buying level. My 12-month targets are $75
for Duke Energy and $50 for Southern.
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