FR: Don’t Fear the Megalopolis

Article: Don’t Fear the Megalopolis

The next article I’m going to look for “Fool Revisited” at helps illustrate how an idea turns into an article. I believe we had completed a sector class on utilities and had an assignment to write about utility companies as investments. Utilities are often favorite companies of people seeking reliable and sustainable yield in their investments, primarily because utilities are so regulated but they provide services that a lot of people can’t do without. But it would have been easy to write an article about “The BEST Dividends in Utilities” or something like I had done in the past with other sectors – and this kind of ended up being that anyway – but I decided to take a different approach.

I’m pretty sure I read some article or saw this page on Wikipedia to develop the premise for my article. As mentioned in my article, the northeast corridor between Washington, DC and Boston contains a bunch of people: approximately 1/7th of the US population resides along this stretch of I-95, and a lot of U.S. “production” – at least on a GDP basis – comes out of the area. I figured that would be a good thing to base an article about utilities on, because those 50 million+ would sure generate/need a lot of utility services. Good thought, though maybe I didn’t quite execute as well as I hoped.

Nevertheless, here is the tweet from the Twitter archive announcing its arrival:

Utility companies probably shouldn’t be expected to do a whole lot better than the S&P 500 in general, and the six megalopolis utilities chosen for the article bear this out. Though none lost money, only one was within 3% of the S&P 500. The average return of the six companies was nearly half the S&P 500’s return during the period in question. Using the compound annual growth rate (CAGR) and total growth, an investor would have been better off investing in the market than any or all of these companies from article publication (October 3, 2011) through January 26, 2018, and it’s not really close:

Stock Start Price End Price CAGR Total Growth Value of $10,000
Dominion Energy (NYSE: D) $36.35 $75.50 12.26% 107.70% $20,770
Consolidated Edison (NYSE: ED) $44.07 $80.40 9.98% 82.44% $18,244
Public Service Enterprise Group (NYSE: PEG) $25.08 $51.20 11.95% 104.15% $20,415
Eversource Energy* (NYSE: ES) $26.16 $64.07 15.23% 144.92% $24,492
National Grid (NYSE: NGG) $39.28 $57.59 6.24% 46.61% $14,661
Exelon Corporation (NYSE: EXC) $31.60 $38.86 3.33% 22.97% $12,297
S&P 500 $1,099.23 $2,872.87 16.42% 161.35% $26,135

Source: Yahoo! Finance & author calculation; Stock prices include dividends & stock splits; *formerly Northeast Utilities

In looking at these returns, they are honestly what I would expect from public utility companies. An investor doesn’t typically choose a utility stock for rapid growth, though it would be nice to see market beating returns. However, for the first time among all my previous “best dividends” pieces, these companies are still yielding within a half percent on average from article publication (4.35% then vs. 3.82% now), including Dominion Energy having increased its yield in the meantime. If this doesn’t reinforce that investing in utilities is best for regular dividends, I don’t know what else will. Nevertheless, I am more of a growth-oriented investor, so I’m not likely to buy a utility stock anytime soon, but to each their own.

Until next time…

Disclaimer: I do not personally own shares of the companies mentioned here, and I have no plans to purchase shares of any company mentioned within the next 60 days in any account in which I manage investment funds. You can read a little about my personal investment philosophy here.

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