TAKING STOCK: Utilities

Dear Mr. Berko:

I used my entire savings account to buy 387 shares of Piedmont Natural Gas at $12 in 1988 after attending your talk on the stock market about only buying stocks that pay increasing dividends. So after reinvesting all the dividends for 34 years plus adding a few hundred dollars (from my annual bonus each year) I have 4,637 shares worth $153,000. This is my only stock, except for my company pension in mutuals that has done poorly. I wish I had put that money in Piedmont instead of my company pension plan. I'm now 67 and will retire this summer. I'll have $5,750 Piedmont dividend income, plus $18,0000 social security plus $12,000 in pension income. My wife gets $9,000 in social security so we're doing real good and we have $78,000 in savings. I'm thinking about getting my two grandsons started by putting $5,000 in a utility stock for each and set up the account so the dividends will be reinvested every three months. What utility would you recommend, or should I buy them Piedmont that has done so well for me?

-- TG: Gainesville, Fla.

Dear TG:

I have no objections to Piedmont or any of the following five utilities for your grandsons. However, with only $78,000 in savings, I think it would be prudent to keep that money close to the vest for your future needs, which may be a lot more than you bargained for. One of the reasons Piedmont (PNY-$33) has done so well is that every time you reinvested a dividend you received a 5 percent discount on the purchase of new shares. In other words, if PNY shares were selling for $30 when the dividend was reinvested you paid $28.50. First Financial Commonwealth, Agnico-Eagle Mines, Health Care Realty Trust, Independent Bank Corp and Aqua American are a few others that offer 5 percent discounts to market value on shares purchased in their dividend reinvestment plans.

Well-managed utilities are always superb candidates for dividend reinvestment programs (DRIPs). If you must purchase utility for the boys, the following issues have a long history of rising dividends. However, when purchasing a utility stock for dividend growth it's important to be mindful that a payout ratio of less than 70 percent of earnings indicates the possibility of future dividend growth. While a high payout ratio (that which is in excess of 90 percent) is usually not sustainable and could indicate the possibility of a future dividend cut. However none of the five following utilities offer a DRIP discount.

SOUTH JERSEY INDUSTRIES (SJI-$54.15) pays $1.77 and yields 3.0 percent, distributes natural gas to 350,000 users in the southern counties of New Jersey covering about 2,500 square miles, including an area called Atlantic City. SJI, which split two for one in 2005, has increased its dividend every year since 1999, expects to earn $3.35 in 2014 and should increase its dividend to $2.21. NEXTERA ENERGY (NEE-$84.41) pays $2.64 and yields 3.3 percent, serves 4.6 million folks in southern Florida covering about 28,000 square miles. NEE split two for one in 2005, has increased its dividend each year since 1999, should earn $5.28 in 2014 and may raise its dividend to $2.88. DOMINION RESOURCES (D-$64.05) pays a $2.20 dividend that has increased in each of the last 11 years and yields 3.50 percent. D, which split two for one in 2007, serves 3.8 million users in Virginia, North Carolina and Ohio and projects earnings of $3.30 in 2014. The Street believes the dividend will be raised to $2.37. ALLIANT ENERGY (LNT-$51.65), which pays a $1.88 dividend that yields 3.60 percent, was formed in 2003 in a merger of Wisconsin P&L and Interstate Power. LNT serves 1.4 million customers in Iowa, Wisconsin and Minnesota, has grown its dividend every year since inception and expects to pay $1.99 in 2014 on earnings of $3.53.

Realize that these utility issues are trading very near their all-time highs. And when the administration finally instructs the FED to raise interest rates, utility stocks as well as bonds will begin to drop like tears from a tall camel's eye. But long term, through thick and thin these issues should do well.

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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.

© 2014 Creators Syndicate Inc.

Published: Fri, Jan 3, 2014

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