Investing Topics: Conservative Income

Oklahoma Natural Gas Company has provided regulated gas distribution service to Tulsa, Oklahoma since 1906. Today, successor company ONEOK (NYSE: OKE) serves 2.1 million customers as the largest gas utility in Kansas and Oklahoma, and third biggest in Texas.

Seek stocks of healthy and growing companies whose prospects exceed investor expectations. Then build a diversified and balanced mix you can hold long-term, to enjoy the rising cash flow and share price appreciation that growing dividends provide over time.

The Dow Jones Utility Average has lost ground in 17 of the 30 Januarys since 1984. Happily, only 5 of those declines led to a losing year. And in 13 winning Januarys, the average total return was 24.8 percent—the only losing year 1987.

The Conrad’s Utility Investor Portfolios officially launched on July 31, 2013. Since that time, the Dow Jones Utility Average is off -2.3 percent, including dividends paid.

My Aggressive Income Portfolio is up by 9.3 percent, while the Conservative Income Portfolio has returned 3.3 percent.

Will Santa Claus visit utility stock investors this year? The sector was out of the gate quickly to start the fourth quarter of 2013. But concerns about the “tapering” off of Federal Reserve bond buying quickly slowed things down.

Ready to lock up money for 54 years at just 3.4 percent annual interest? More than a few investors did this week when their funds bought Enterprise Products Partners’ (NYSE: EPD) 7.034 percent bonds maturing January 15, 2068, a barely investment grade BBB- credit.

Part of me wants to say, “It’s about time.”

But Moody’s decision last month to put $400 billion-plus of sector debt on review for upgrade is unabashedly welcome news for utilities.

Healthy growing businesses produce rising dividends, which in turn push share prices higher: That’s the utility investor’s road to superior and safe long-term returns. And if operating results of our Portfolio companies are any indication, it’s still wide open.

Since World War II, no regulated utility has ever failed to make its bondholders whole from disaster. That gives utility bonds a level of safety no other sector can match, particularly after 11 years of systematically cutting debt and operating risk.

Utility bonds’ years of being under-rated may be coming to an end, now that Moody’s is considering a sector-wide upgrade. But for now, they’re under-priced and therefore yield more than debt of equivalent real risk.

Shares of transmission line operator ITC Holdings (NYSE: ITC) have dropped more than 14 percent from the all-time highs reached in early November. The immediate catalyst: A group of industrial users have demanded the Federal Energy Regulatory Commission cut its allowed returns.