TAKING STOCK: Missouri utility a 'No,' UK utility a 'Go'

Dear Mr. Berko:

What do you think of Empire District Electric, which, according to Yahoo Finance, has a great 6.5 percent yield?

I'd also like your buy/sell opinion on National Grid, another utility that yields 7.5 percent, according to Yahoo Finance.

GH, Indianapolis

Dear GH:

Holy cannoli. Empire District Electric (EDE-$19.29) does not pay a dividend anymore. Management suspended the 32-cent quarterly dividend six months ago, when its Joplin, Mo., service area was devastated by a tornado. The tornado damage will cost EDE about $25 million, and the costs will be capitalized. The suspended dividend, which EDE expects to restore next year, should conserve about $27 million in cash. When the dividend is resumed in 2012, management indicates a payout of 25 cents a quarter, which is obviously less than the previous 32-cent payout.

EDE is a teeny-tiny utility with $510 million in revenues. It serves 205,000 electric and gas customers in Missouri. In the last 17 years, EDE managed to grow its dividend by only 4 cents while company revenues doubled from $256 million in 1994. And during each of those 17 years, earnings bobbled, hobbled, ducked, slid and clucked.

In 1994, EDE earned $1.18 per share, and in 2010 (a trouble-free year), EDE posted earnings of $1.17 a share. Not good, that! And unless EDE gets a high buyout offer from Boeing or Amazon, there's not a single reason to own the stock. But I can think of a thousand reasons to give EDE's constipated management an industrial-sized enema.

Meanwhile, I must give you and other readers some good advice: Do not -- and I repeat, do not -- depend upon the Yahoo Finance website for financial information. And if you insist on checking the site, it's critical that you verify Yahoo's financial data with a reputable source, such as your bookie or attorney. The yahoos at Yahoo Finance show EDE paying an annual dividend of $1.32 ... six months after management suspended its payout because of tornado damages to its plant.

Mistakes like this are common with Yahoo. Unfortunately, the employees who run the site sometimes take more than 50 minutes for lunch. And that's the crux of the problem. When many of those yahoos take over 50 minutes for lunch, they gotta be retrained when returning to their cubicle. And that takes time and money.

National Grid PLC (NGG-$47.86) is an interesting utility with 27,000 employees, and it pays a sweet dividend of $3.82 with a solid 7.95 percent yield. Home-ported across the pond in London, NGG operates transmission networks and gas distributions systems in the U.K., New York and New England. It also owns and operates electricity interconnects between England and France, plus three huge liquefied natural gas storage facilities in Great Britain.

More specifically, the company has an 8,600-mile gas pipeline network that distributes to 11 million U.K. consumers, and NGG also provides electricity to 3.5 million customers in New York and New England and distributes natural gas via a 4,000-mile pipeline to 3.4 million additional New York/New England users. The utility also owns 57 generating plants in Long Island, N.Y., that produce 4.1 gigawatts of power.

In the past 10 years, NGG's earnings have grown 30 percent, and the payout has increased 50 percent -- and so have revenues, which now surpass $22 billion. NGG trades at less than 10 times earnings of $5.22, and that's below industry average.

This appears to be a good utility for modest revenue, income and dividend growth. Standard & Poors, Market Edge, Reuters, Barclays Capital and Goldman are recommending NGG, and I agree with them.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Fri, Oct 14, 2011