(B)(N) The Dow Utilities

Susquehanna Steam Electric Plant
Courtesy: PPL Corporation

Drama. The Dow Utilities paid out an astounding 96% of their earnings or $14 billion to their shareholders last year for an aggregate dividend yield of 4.1%. Is there any reason to think that they might earn less or pay out less this year?

As usual, we need to pull out the magic compass to figure out what investors are thinking and whether they might bid up the stock prices this year. The fundamentals are cloudy but suggest that investors are satisfied with a 4% market price yield ([P/E] 24×) and a 4% dividend. Please see Exhibit 1 and 2 below.

Exhibit 1: The Dow Utilities – Fundamentals – January 2014

The Dow Jones Utilities – Fundamentals – January 2014

Exhibit 2: The Undervalued Dow Utilities – Risk Price (SF) – January 2014

The Undervalued Dow Utilities – January 2014

The chart on the left shows that the utilities are still “undervalued” in aggregate although the “gap” between the market value and the “fair price” at the price of risk (Risk Price (SF)) has narrowed considerably since 2011 with a steadily rising “price of risk” for which we credit the industry.

In effect, the market value predicated in 2011 was “earned” two years later (blue line).

+4% and +17%
As Good As Cash And Better Than Money

But there’s no reason to own all the utilities to get that result. The companies identified as trading at or above the price of risk in late 2012 have returned a 4% dividend and +17% in market value.

And we know exactly why we own them and how to control the volatility risk and market surprise. Please click on the links The Dow Utilities – Prices & Portfolio and Cash Flow Summary for more details.

Exhibit 3: (B)(N) The Dow Utilities – Prices & Portfolio – January 2014

The Dow Utilities – Prices & Portfolio – January 2014

For more information on the chart elements and additional references to the theory, please see our Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
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Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.