Energy Commodities: Invest through Electric Utilities
You probably get a letter from them every month, but you may have never given too much thought about the commodities investment opportunities that they present. “They” would be, of course, the electric utilities. Utilities are the companies responsible for providing electricity to millions of folks in the United States and around the world.
Utilities make good investments for a number of reasons, particularly for their very high dividend payout. The industry has an average 5 percent dividend yield, one of the highest of any industry. However, remember when you’re investing for dividend income that dividends are subject to market fluctuations.
|Great Plains Energy||NYSE: GXP||4.60%|
|Consolidated Edison||NYSE: ED||4.80%|
|Duke Energy Corp.||NYSE: DUK||5.50%|
|Dominion Resources||NYSE: D||4.30%|
|PG&E Corp.||NYSE: PCG||3.80%|
|Entergy Corp.||NYSE: ETR||4.70%|
Dividends are a taxable source of income. Because of recent tax relief legislation, taxes on income generated through dividends are capped at 15 percent. However, Congress is considering an overhaul of the dividend tax in 2008 that may result in an increase in the dividends tax rate. Keep a close eye on these dividend tax issues, because they’ll have a direct impact on your utility investments.
In addition to juicy dividend yields, utilities offer you solid capital appreciation opportunities. Consider these companies when implementing your utility trading strategy.
Consolidated Edison (NYSE: ED): If you live or have ever lived in New York, you’re familiar with ConEd. ConEd is the main utility for New York State and New York City; its main line of business is regulated electric, gas, and steam delivery to wholesale and retail customers.
ED provides electricity to more than 3.5 million clients and has coverage of more than 650 square miles. This company is a good option if you’re looking for exposure to the robust East Coast (especially New York) utility market.
Duke Energy Corp. (NYSE: DUK): Duke Energy is one of the main players in the U.S. utility market. With a staggering 35,000 MW electricity-generating capacity, it has a footprint that spans the East Coast and the Midwest, and it has a portfolio in Latin America as well.
In addition, Duke Energy owns and operates a natural gas–distribution business in Ohio and Kentucky, with an additional portfolio of renewable energy assets. With net profit margins of 16 percent (2010 figures), this company is good for broad-based utility exposure in the Americas.