Utilities are rockin’ the set this summer. So let’s take a look at one that has performed very well for my Strategic Advantage newsletter portfolio in July, rising 4.5% plus the 4.4% annual dividend.
Investors fled to high yielding, stable utilities like Piedmont Natural Gas Co. (NYSE: PNY) through the turbulent 2000-2002 bear market as well as in most of 2007-2008 and this year. PNY shares flat-lined in 2009 when the high-beta stocks ruled, but have proven their worth again in 2009. As a result of taking a year off, essentially, PNY is now trading at a very reasonable valuation.
Piedmont is based out of Charlotte, N.C., and earns 70% of its revenues in that state. The company also operates in South Carolina and Tennessee and serves over 1 million customers. PNY generates $1.55 billion in annual revenue and has a market cap of $1.85 billion.
Natural gas is emerging as a transition fuel as America is slowly weaned off crude oil. The Department of Energy has estimated that the United States has sufficient reserves to meet all of America’s power needs for the next 100 years. Natural gas generates half the carbon dioxide of coal for an equivalent amount of heat.
Historically, natural gas has also been one of the cheapest forms of energy. Its primary use is residential and commercial heating. Because of its efficiency, cost effectiveness, and low carbon footprint, 90% of newly constructed homes use natural gas for heat.
Gas powered appliances are also becoming more popular. They are typically more expensive than their electric counterparts but they have a longer expected life and lower maintenance costs. According to the American Gas Association, a natural gas water heater could heat one bathtub for half the cost of an electric one. Gas can be also used as a transportation fuel here as it is in many other countries, including Brazil.
Unlike natural gas drillers who are dep! endent o n high prices, Piedmont is unaffected by the volatility of gas prices because it can pass along cost increases to customers. The distributor charges customers a rate for the entire year. If natural gas prices spike, PNY charges customers an additional fee. PNY is required by its state regulating body to reduce rates if gas prices fall. This arrangement eliminates most earnings unpredictability and allows the company to earn a higher rate of return than many other gas distributors.
Piedmont is converting houses in the Carolinas to natural gas to mitigate the effects of the housing slowdown. In 2009, the company converted 62% more residences than 2008. The company expects a similar number of conversions this year.
Natural gas prices often fluctuate due to weather and economic conditions, and Piedmont’s acquisition of new storage facilities will give the company greater flexibility to purchase natural gas throughout the year.
Management has demonstrated that it can limit financial risk during volatile industry cycles. All current managers including chief executive Thomas Skains have advanced through the company or have decades of industry experience. Piedmont has grown its dividend every year since 1978, and its debt is rated A by Standard & Poor’s and A3 by Moody’s.
Piedmont is currently priced at 12.6x trailing earnings. Increased adoption of natural gas and a healthy 4.4% dividend should ensure that the stock maintains its current valuation. As investors seek stocks that provide greater stability and income, the stock should trade near its 2009 high of $31 or 21% higher than today’s closing.
I realize that owning utilities is not at the top of every investor’s to-do list, but they have proven to be very good investments over the long haul.? They are still cheap now and can be bought. PNY is a great place to start.
As stated, Jon Markman was recommending Piedmont stock to readers of his Strategic Advantage newsletter at this writing! . For mo re ideas like this, check out his Trader’s Advantage or Strategic Advantage investment advisory services.
?
Triple-Digit Profits No Matter What the Market Does �C You are not at the mercy of the markets. You can start adding triple-digit winners to your portfolio now if you��re ready to embrace the new rules of investing. Let Jon Markman show you how to make money every day in up markets AND down. Download your FREE copy of this report here.
Related Articles:10 Ways Sports Teams Could Lower Ticket Prices
Just Like Old Times: Consumer Credit Jumps
Tags: baseball tickets ,basketball tickets ,Bruins ,Celtics ,corporate boxes ,fans ,football tickets ,free tickets ,hockey tickets ,MLB ,NBA ,NFL ,NHL ,Pittsburgh Penguins ,pittsburgh pirates ,premium ,Best China Stocks 2012
No comments:
Post a Comment