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In 2008, while the S&P 500 was down 38.49%, utilities dropped 31.55%. Usually utilities hold up well in a bear market as they are considered defensive plays. However in current times utilities are also getting killed since they have high capital expenditures, engage in energy trading activities, etc. So in a way they are defensive as they were in the past. However unlike banks and other sectors utilities are a necessity that people have to depend on for everyday life. We could say that next to consumer staples like food, utilities are the next important item that consumers pay their bills. Hence utility stocks are an integral part of a well-diversified portfolio.

The following table lists all the foreign utilities traded in the US organized exchanges together with the current dividend yield and prices:

Note: All data is as of market close Jan 5,2009.

An investor looking to get some exposure to foreign utility stocks can use the above table as a starting point to do further research. Emerging market companies like CIG, CPL, MGS, etc. may pay high dividends but they are not consistent and the stocks themselves maybe volatile as well. Only a developed markets utility stocks trade in the US. In a future post we shall explore those stocks that are traded in the OTC exchanges.

written by David

Today The Guardian of UK reports that British Government led by Gordon Brown plans to create 100,000 jobs.

The article titled “Brown unveils plan to create 100,000 jobs” says “Gordon Brown today unveils ambitious plans for a 1930s American-style programme of public works to ease the pain of recession by creating up to 100,000 jobs.

School repairs, new rail links, hospital projects and plans to usher in a new digital age by investing in superfast broadband will be used to keep unemployment down. The plans will also be used to tackle climate change, by means of investments in eco-friendly projects such as electric cars and wind and wave power that would also create jobs.

Speaking exclusively to the Observer, the prime minister also pledged action within weeks to kickstart bank lending in an attempt to save existing jobs.”

This number is a drop in the bucket - which will not save the economy. To put this number in perspective, in July 2008 the Office for National Statistics reported that the jobless total stood at 1.72 Million and the unemployment rate was 5.5%. Now five months have passed. The current unemployment rate will be higher in the UK after all the layoffs in financial services and other sectors in the past few months.

Yesterday The Times’ article “Chancellor Alistair Darling on brink of second bailout for banks” mentioned that Alistair “will decide within weeks whether to pump billions more into the economy as evidence mounts that the £37 billion part-nationalisation last year has failed to keep credit flowing. Options include cash injections, offering banks cheaper state guarantees to raise money privately or buying up “toxic assets””. This is basically the idea originally proposed by Hank Paulson here in the US. The idea is create a “bad bank” to dump all the toxic assets from the other not-so-bad supposedly “good” banks. These “good” are like Citibank, Chase, Bank of America, etc. Will time will tell if the second bailout plan in the UK will succeed.

Our President-Elect Obama said in November that he will create 2.5 Million jobs. (Source: Chicago Tribune - Obama goal: Create 2.5 million jobs). To put this number in perspective, the total number of unemployed people in the US totalled 4.43 Million in December,2008. The November unemployment rate reported was 6.7%. Also in November alone, the US lost 533,000 jobs. Most of the jobs lost are well-paying jobs int he manufacturing, financial services,retail and other sectors.

Obama says his goal is create 2.5 Million jobs in 2 years. Most the jobs will be in the infrastructure space such as bridges, roads, schools, etc. I am not sure if those jobs will pay enough to pull this economy out recession. Moreover nobody knows how those jobs will be created, whether they will in Private or Public sector, etc.

2009 is going to be interesting year to watch.

written by admin

Calgary-based TransAlta Corp. is an electric utility with operations in the western part of Canada. The company generates power using coal, hydro, gas, geothermal and wind. About 70% of power generated is sold under government mandated long-term contracts. From their corporate site “TransAlta has been in the power business for almost 100 years - our output from more than 50 power plants is more than 8000 Megawatts - enough to power almost 7 Million homes”

TransAlta(TAC) is the only Canadian utility that is part of the S&P ADR Index.

The current dividend yield is an excellent 5.22% and the company has modest growth over the years since it is a utility. Average annual earnings growth over the last 5 years is 7.50% and the profit margin is about 10%. In 52 weeks, TAC is down 39% - which is high compared to other utilities. The P/E of 18.99 is much higher than the industry average of 13.73.

TAC received an acquistion bid from LS Power Equity Partners, an entity associated with Luminus Management LLC, and Global Infrastructure Partners which valued the company at C$39 per share in cash. On August 6th, TAC’s board rejected the proposal saying that the offer undervalued the company. Currently the stock trades at C$25.25 in the TSX - much lower than the offer received back in July.

Compared to some US and European utilities, TransAlta is an average performer over the long-term. However if an investor is looking to invest in a Canadian utility this is one option.

written by David