A Better Investment Than Treasuries?
The Dynamic Wealth Report
August 31, 2010
by Jay Chernoff, Editor
The market is loaded with interesting investment opportunities. Investors can buy into almost any conceivable asset class from oil
pipelines to real estate, even commodities or bonds. The choices are
endless.
It’s hard to even know where to begin…
Despite all the options, it seems every asset class is experiencing huge
volatility right now. Investors are second guessing their portfolios
every day. And a growing number of people are looking for safe, steady
places to invest their money.
It’s why cash has been flowing into government bonds. U.S. Treasuries
are still the safest investment in the world.
Unfortunately, the safety of Treasuries comes with a price. A tiny
payout. Yields are at historic lows as investors flock to government
bonds in droves.
But what about investing safely and earning a decent return?
There has to be a better way…
There is. Utilities.
I know… your eyes glaze over when you hear someone mention utilities. But
we’re not in a raging bull market anymore.
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I’ve always considered utilities as a safe alternative to bonds. They
provide similar benefits – income and safety. But utilities have
something Treasuries lack… potential for growth.
For example, take Pacific Gas & Electric (PCG).
PCG is a huge utility covering northern and central California. It
provides electricity and natural gas to over five million customers. The
company’s revenues are over $13 billion. And PCG’s market cap is almost
$19 billion. Obviously, this company is a giant.
There are several reasons why I prefer PCG to Treasuries.
Let’s start out with the dividends.
Let’s face it. If you’re adding a utility to your portfolio, your goal
is to collect dividends. Good news –
PCG’s dividend yield is nearly 4%.
Let me put that into perspective for you.
The yield on the 10-year Treasury bond is around 2.5%. PCG’s dividend is
60% higher. And check this out… the dividend yield for the S&P 500 is
around 2.0%. PCG’s dividend is a full 100% higher.
And that’s not even the best part…
A huge utility like PCG is a very low risk investment. Why?
Because
everyone needs electricity and gas. Customers aren’t going to suddenly
stop paying their power bill.
Remember, a large portion of the company’s revenue is regulated by the
State of California. And that’s a good thing… the company can pass
increasing costs down to its customers. And, as PCG adds to its
infrastructure, they can often increase rates as well.
But that’s not all… the company has growth potential.
In fact, management just reaffirmed guidance for 2010 and 2011 earnings. And the growth is nothing to sneeze at.
Over the last five years, they’ve grown their dividend almost 24% a year. And they recently bumped the quarterly payout to $0.455.
Investors have taken notice.
Last week, PCG hit a 52-week high… while the rest of the market was
selling off.
Management is planning for the future as well.
They’re already investing in alternative energy. In fact, they own a
nuclear power plant and a hydroelectric plant. And they’re looking into
solar power as well. They just signed an agreement with NextEra Genesis
to buy solar energy.
They aren’t going to get caught on the wrong side of the tracks when
fossil fuels start getting phased out.
Look, I understand the allure of Treasury bonds. You can’t beat the
security of investing in the U.S. government. But you’re missing out on
income AND growth potential by not looking at utilities.
If you’re looking for a change of pace from Treasuries, consider
grabbing some shares of PCG for your portfolio.
Another quiet IPO week with only one new offering to report. Whitestone
REIT (WSR) debuted at an initial price of $12.00. It closed at $11.50 on
its first day. Expect to see more IPOs in the next few weeks as the
summer comes to a close.
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