Rarely will you find a sector’s top-quality stocks on sale more than five years into a bull market. But that’s the case with this new Conservative Income Portfolio holding. Record demand has enabled this utility to grow its first-quarter earnings by 19.7 percent year over year.
A growing, capital-intensive business must regularly be fed with sales of debt and equity. Investors almost invariably fear such offerings as either dilutive or incurring more debt. But the lowest corporate borrowing rates in a generation have enabled companies to cut interest expenses with new debt offerings, eliminating their near-term exposure to rising rates. This week, we look at six Conrad's Utility Investor Portfolio holdings that have had recent offerings.
Our Portfolios are a mixed bag in terms of their underlying businesses and growth drivers. But our holdings are on track for solid earnings and dividend growth over the long haul. These names don’t respond uniformly to changing business conditions or short-term market moves so diversification is key to reduce volatility.
Dividend-paying stocks aren’t bond substitutes and never will be. Any investor who has sold these equities because of rising interest rates has lost big over the past 22 years. Those who do so now are playing with the same fire and, inevitably, will be badly burned.
The aftermath of a dividend cut is always an emotional time, especially for investors who own the stock in question. But if you can keep a level head and evaluate the company’s proposed turnaround effort, you can find deep-value plays poised for big returns—a rarity in a five-year-old bull market.
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.
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Roger's current take and vital statistics on more than 200 essential-services stocks.