Taking Stock: In a market gone mad, many utility stocks provide stability

Dear Mr. Berko: I have a $100,000 CD that comes due tomorrow, and I would like to buy some utility stocks. What do you think of the idea? And which utilities would you recommend for a 72-year old who is wary of stock-market volatility?

MB in Jonesboro, Ark.

Dear MB: The following is a list of utility issues that I believe can provide you with a steady and safe income stream through good or bad markets and through good or bad economic times. And while share prices will fluctuate -- though not nearly as much as the general market -- the dividends should be dependable and provide you with modest increases over time.

Of course, when the economy recovers to a growth mode, these issues should experience better-than-average revenue growth. And because these utility companies are well managed, that revenue growth should produce higher income and dividend growth.

The yield on this utility portfolio is a tad over 5.3 percent today, and because I think the Dow may continue lower over the coming 12 months, it's reasonable to assume that these issues can be purchased at lower prices. So I recommend that you place a large portion of your orders below their current market prices.

This is called a ''Good Till Cancel, Stop Order'' (GTC) and it should be marked ''Do Not Reduce'' (DNR). Essentially, this order stays in effect until you cancel it. And when the stock falls to the price you chose, it is immediately executed on the next trade. The DNR tells the brokerage that it should not reduce the stock price by the amount of the dividend. So divide your $100,000 into four piles of $25,000, and follow the instructions below.

Today, invest the first $25,000 pile in the following five issues at the prevailing market price:

- Invest $5,000 in Ameren (AEE-$27.40), which provides power to Missouri and Illinois. Its $1.54 dividend yields 5.5 percent. Ameren was founded in 1881.

- Invest $5,000 in PPL Corporation (PPL-$26), which provides power to the northeastern U.S. and the U.K. Its $1.40 dividend yields 5.3 percent. PPL was founded in 1920.

- Invest $5,000 in American Electric Power (AEP-$35.76). AEP provides power to 5.2 million customers in 11 mid-western states and owns the nation's largest electricity transmission system. The $1.84 dividend yields 5.1 percent. AEP was founded in 1906.

- Invest $5,000 in Entergy (ETR-$61.55), which provides electricity and natural gas to 2.8 million users in Arkansas, Mississippi, Texas and Louisiana. Its $3.32 dividend yields 5.3 percent, and the company was founded in 1989.

- Finally, invest $5,000 in UIL Holdings (UIL-$31.39), which sells power and natural gas to 17 Connecticut communities. The $1.73 dividend yields 5.40%. UIL was founded in 1899.

After you have purchased these five issues, place GTC-stop-DNR orders at 6 percent below the purchase price of each of the stocks you just bought. When they are executed, you will purchase $5,000 of AEE at $25.75 with a 5.9-percent yield; $5,000 of PPL at $24.44 with a 5.7-percent yield; $5,000 of AEP at $33.61 with a 5.5-percent yield; $5,000 of ETR at $57.85 with a 5.7-percent yield; and, finally, $5,000 of UIL with a 5.9-percent yield.

Be patient. Those orders may take several months to execute.

Do the same with the third round of $25,000, and reduce the price of each issue by 6 percent once again. So once you've invested $75,000, you'll have a total dividend yield of 6 percent.

Some of those issues will increase their dividends this year or next year, and those that didn't may grow their dividends the following year by a few cents. And in the coming dozen years, it's reasonable to assume an average annual total return between 8 and 9 percent. This won't make you rich but it certainly should keep you more than mildly comfortable.

Now, keep the remaining $25,000 in a money market account. Cash gives you time to think, and over the next 12 months there will certainly be some good bargains at uncommon prices that you should not resist. Watch my column for them.

Please address your financial to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2011 CREATORS.COM

Published: Thu, Sep 8, 2011