Investing Topics: Dividend Stocks

The Conrad's Utility Investor Portfolios have beaten benchmark interest rates since I launched on July 31, 2013 - a clear sign my recommended dividend-paying stocks follow earnings, not interest rates. And with another round of earnings due later this month, all of our companies are set to prove their worth to investors again.

America's leading telecom doubles down on its US business with a key acquisition.

Utility history is rife with poor diversification, and that appears to be the consensus bet against WGL Holdings (NYSE: WGL), the regulated gas distribution company for the District of Columbia, suburban Maryland and Northern Virginia. But an A+ rating on top of an attractive yield could change skeptics' minds.

As a long-time shareholder of Berkshire as well as many utilities, I’m encouraged. I’m skeptical of some of the names being floated as MidAmerican’s next potential targets. But the feature article highlights several companies that fit the mold of NV Energy and PacifiCorp, which Berkshire bought in March 2006 from the former ScottishPower.

MidAmerican earned $1.47 billion in 2013 as one of Berkshire’s “Powerhouse Five” non-insurance businesses. That was approximately 7.5 percent of the company’s overall profit, a share that will rise to around 10 percent in 2014, thanks to a full year of owning NV Energy.

Even after the next acquisition, electric utility assets will be less significant to Berkshire’s fortunes than insurance, or even railroads (20 percent of profits). But there are two clear takeaways from Mr. Buffett’s continuing interest in the power sector.

First, MidAmerican is likely to buy another utility this year, handing investors windfall gains. Second, there are regulated electricity assets that still meet the criteria of the world’s most successful value investor.

Closed-end bond funds have pulled back over the past 12 months in anticipation of rising interest rates. Investors eyeing these funds' high yields should proceed with caution.

Rising interest rates don't necessarily sound the death knell for dividend-paying stocks.

Janet Yellen acknowledged that the Fed might start to raise interest rates six months after phasing out its bond-buying program toward the end of 2014. Take advantage of the selloff in dividend-paying stocks to add high-quality names.

Thanks again to everyone who tuned in to my second on-line chat for Conrad’s Utility Investor subscribers last week. The full transcript of the 4-hour question and answer session is now available on the CUI website by clicking on the “Events” tab from the home page.

Conrad's Utility Investor has three actively managed portfolios--Aggressive Income, Conservative Income and Top 10 Drips--each of which is tailored to a specific investment style and risk tolerance. We review each model portfolio's objective, book a 60 percent gain on one of our winners and shift one of our Conservative Income Portfolio holdings to the Aggressive Income Portfolio.

TransAlta Corp (TSX: TA, NYSE: TAC) has cut its quarterly dividend by 37.9 percent to 18 cents Canadian, starting with the April 1 payment. The new level is low enough to maintain at least the next couple years. As a result, I’m removing the company from the Endangered Dividends List.