Utility Stocks

Whenever there is economic or political turmoil, electric utility stocks shine brightly.Historically, these defensive investments never fall as much in down stock markets as most other groups. For example, during the last 12 months, when the Standard & Poor's 500 was down more than 10 percent, electric utilities as a group slipped a more modest 7 percent."In recession, electric utilities are a safe haven offering dividend yields averaging around 7.4 percent, compared to 3.4 percent for the average stock," said William Tilles, analyst with Dean Witter Reynolds Inc.Keep in mind, however, that corporate users of electricity may well cut back their use if they've had to scale back business efforts for economic reasons.

Utilities stocks are on a winning streak so convincing that it may cause investors to forget the long series of ups and downs they've endured. Decades of regulatory snafus, fumbled new ventures and outright scandal have faded away to reveal a robust, focused industry. It also has benefited from low interest rates and merger potential. Utilities funds - traditionally valued for dividends and steady, if unspectacular, performance - have been roaring: They are up 13 percent in 2007, nearly double the performance of the average U.S. diversified stock fund.

Mega-media mergers grab the headlines. Technology proves it isn't dead by any means. The overall stock market shows remarkable resilience.Yet despite the dramatic hoopla that has kept most investors very happy in 1995, an underlying trend of volatility has pushed more than a few cautious souls toward a defensive posture.These folks are not exactly sure whether all this excitement is too much of a good thing, or how long it may last. They're tired of tracking each new bit of economic data and attempting to anticipate the moves of Federal Reserve Chairman Alan Greenspan.

Like teenage drivers, technology firms can become more responsible with age. In a stock market capable of sudden and severe collisions, investors may not want to take a tech ride without a seatbelt. Only companies that exhibit some maturity can reasonably be considered alongside other, more stable investment choices. Call it conservative tech investing. Or at least more conservative than in the past because many firms are trying to become more predictable and trustworthy. They realize investors are still smarting from past disappointments.

Love me, love my electric utility stock.That's been the sentiment of conservative older investors whose passion for yield-producing holdings usually endures for decades. The average electric utility dividend yield, after all, is a hefty 6.7 percent.This love affair may be ending.Down more than 20 percent in value from their all-time high set last fall, electric utility stocks have been severely wounded by rising interest rates.Admittedly, the worst is now probably over in terms of rate concerns.

The presidential election, no matter whether George W. Bush or John Kerry comes out on top, means one less thing for Americans to worry about. They then can take a deep breath, relax and get back to fretting about other concerns, such as oil prices, the economy and terrorism. Anxiety has transformed utility stocks into a hot investment in 2004. Now I don't mean "hot" in the way that unregulated power and gas trader Enron was hot in its day. I mean hot as in a defensive investment performing well.

WITH DIVIDENDS on the S&P 500-stock index now yielding only 2.06 percent -- by far the lowest ever -- should you buy higher-yielding public utility stocks for income?Their record is not impressive. The past 12 months show the Dow Jones utility index up only 8.31 percent, while the Dow industrials are ahead 27.04 percent.The main reason for utilities' under-performance reflects apprehension over industry restructuring and deregulation, and worries about higher interest rates.In 1994, for example, when rates moved sharply higher, utilities suffered a 20 percent decline.

If you read the Old Farmer's Almanac for 2005, you might be prompted to buy gas and electric utility stocks. The venerable - and often accurate - almanac forecasts abnormal weather for much of the United States in 2005. This looks like the year of the couch potato, snug as a bug in front of the flat-screen TV, with the furnace or air conditioner running full-out. Corporate executives seem similarly risk-averse. Based on the first two weeks of the new year, investors appear to be battened down as well.

Where is the stock market going now? Nobody knows -- too many human emotions involved -- but one offbeat, largely overlooked theory holds that Wall Street could be headed lower."

Investors seeking a safe hideaway for their money this year will continue to find a haven in utility stocks.Utility issues, considered a good defensive vehicle in hard times, offered a refuge for investors during the economic uncertainty of 1991.As interest rates tumbled, investors took their money out of CDs and money-market mutual funds in quest of higher yields.Toward the close of the year, the average yield of the highest-dividend-paying utilities, 7.5 percent, was about twice that of the average New York Stock Exchange dividend-paying stock, 3.1 percent.

If you read the Old Farmer's Almanac for 2005, you might be prompted to buy gas and electric utility stocks. The venerable - and often accurate - almanac forecasts abnormal weather for much of the United States in 2005. This looks like the year of the couch potato, snug as a bug in front of the flat-screen TV, with the furnace or air conditioner running full-out. Corporate executives seem similarly risk-averse. Based on the first two weeks of the new year, investors appear to be battened down as well.

FOR investors, an electric utility stock once was as predictable as flipping on a light switch. Investors could rely on steady growth and healthy dividends just as they could count on the flick of a switch to light up a room. But that was before deregulation, which began shaking up the industry five years ago and will likely continue doing so for years ahead. "They certainly aren't `widow and orphan' stocks anymore," said Phil Cook, a Torrance, Calif., financial planner, referring to the name given to safe stocks that pay high dividends.

In their first day of trading on the New York Stock Exchange, Orion Power Holding Inc.'s shares held firm against a market that saw many utility stocks falter. Trading began at $22 per share and dipped between $20 and $22 before closing at $20 per share - the price that Orion's underwriters had set Monday for its IPO. Volume was 17,294,700. "It was a normal fluctuation," said Thorsten Fischer, energy analyst for Economy.com. "It's still a very successful IPO, and the market has confirmed the range of $20."

Orion Power Holdings Inc., Maryland's newest public company, was valued at $1.9 billion yesterday after its stock was priced at $20 a share in an initial public offering - the top of the estimated price range. Underwriters sold 27.5 million shares - 29.6 percent of Orion's 93 million shares - raising $550 million and netting $452 million for the company. Orion, a Baltimore company that buys and operates power plants nationwide, will begin trading today on the New York Stock Exchange under the symbol "ORN."

WOULD YOU like more income? "Our income favorite is Duff & Phelps Utilities Income Fund," says Income Digest."This closed-end fund trades on the NYSE for about $11 a share and yields 7.3 percent. It invests in utility stocks and bonds. Duff & Phelps is a safe haven in a volatile market."QUIZ PROGRAM: "Does your broker know basic information about you?" asks "Big Decisions for Small Investors" by Gordon Williamson.Questions brokers should ask: "What are your present holdings? Do you primarily want growth or income?

With the S&P 500 stock index up 4.1 percent last month -- and the Dow Jones industrial average ahead 1.9 percent and the Nasdaq composite up a hefty 14.2 percent -- the "January Barometer" offers an optimistic outlook for the year.The 1999 Stock Trader's Almanac says, "Since 1950 the January Barometer predicted the annual market direction with amazing accuracy. Whether the S&P 500 index was up or down in January, 43 out of 48 times the entire year followed suit -- a 90 percent batting average!"

ALTHOUGH MOST people get investment advice from brokers, investment advisers, newspapers, well-known magazines, etc., many investors may be unaware that worthwhile ideas also appear in less-well-known, offbeat publications. Examples:"Despite deregulation, top utility stocks are an investor's dream come true," says Utility Forecaster. The story stresses "price stability, improving share prices and rising dividends," adding, "The best utilities pay four times the dividends of most common stocks, and many utility stocks will double over the next year."

Baltimore Gas and Electric Co.'s common stock price reached an all-time high yesterday, part of an industry crest resulting primarily from lower interest rates.BGE's closing stock price of $27.75 per share eclipsed the previous high set in September 1993 by 25 cents per share as declining long-term interest rates combined with company cost-cutting measures and a recent natural gas rate increase to curry favor with investors.Although the steady surges in the Dow Jones industrial average have positively affected many utility stocks, few have risen to the degree BGE has in the past year.

HERE ARE TIPS to think about when you're deciding how to invest your money."Havens in times of market turmoil, utility stocks are showing new life. While the Dow industrials toppled about 2 percent from their May 3 peak, the Dow utility index climbed 4 percent. At this point, we're looking for utility opportunities like those in transportation and banking sectors when they were deregulated." (Barron's)"Although dividends are important to older investors, payouts matter less than formerly.