February 2000 Report:
1 - asset allocation on retirement - click here
2 - this page - Time to Buy Energy Utilities - below
3 - TransCanada Pipe and John Neff on Selling
4 - the list and comment (this page)
Time to Buy Energy Utilities - Connolly Report February 2000 p 451
There are many stocks in the list "above" or "in" position. Which to buy is the dilemma. As a result, the table in this issue has changed. The table shows the high price for each of the stocks in the list, when the high price was reached...most in the spring of 1998, notice...and the percent decrease in price from that high (not the 52 week high) to the current price. The average drop is 35%. To say the least, banks and energy utilities have not done well, price wise, since the spring of 1998. There is no cause for alarm: this is typical for these stocks at this point in the economic cycle. Rising interest rates have been the main factor causing the decline but many other factors, including the concern over TransCanada's dividend reduction and insurance company IPOs, are at play.
I have been waiting for and hoping for a price drop. What could be better. You still get the dividends and dividend increases on all the common stocks already owned and now have a special opportunity to buy more of the good stocks at "on sale" prices.
As nearly as I can figure, the TSE 300, if you don't count the recent rise of BCE and Nortel, reached a high in the spring of 1998. The bubble in the technology/telecommunications sector has skewed the TSE as a measure of the market. As a result, investors still do not realize we are in a bear market. Market breath ( advance /decline index) reached a high in the spring of 1998 too...more stocks have been declining than rising for about two years now.
I reckon the bear market in the energy utilities has just about run its course and have begun to buy them again. Besides considering the steepness of the price decline in deciding which stock to buy, I'm using average yield and relative yield (This measure, however, is also skewed by the low yield of the TSE 300 index.) as well as recent dividend increase data and five year dividend growth statistics. Only a few stocks are above their average yield. Of these, only three have had recent dividend increases: TA, FTS and NSH. None of these has had outstanding dividend growth recently.
I move further down the list looking for a high current yield in combination with a good dividend growth record and a stock I don't already own too much of. This gives me W, BCG, ENB and CU. Only one of these has a yield above its average...Westcoast. Westcoast had no 1999 dividend increase, but there was one in the fall of 1998 and 1999 earnings per share were up from $1.53 to $1.95. I'm waiting a bit longer for BCG, CU and ENB. Study these graphs. (Sorry. I have no graphs for the web edition yet. Position graphs were for: W, BCG, CU and ENB. W and BCG are "above", CU and ENB are "below" but close. Yield graphs were for W, BCG and ENB. Westcoast is above its long term average yield. BCG and CU are not quite...yet. There was also a relative yield graph for Westcoast.)
(For price graphs I use Independent Survey Company's 10 year Monthly Stock Charts -in a sharp new format - with earnings and dividends. Next issue April 7 $28.89 Box 29062, Vancouver B.C. V6J 1Z0 or www.chartsmart.com)
go to more Feb 2000 report - page 3 (p450) about TransCanada Pipe
DIVIDEND INCREASES confirm the viability of earnings.
N.S. Power up 1.2% to .21 on Feb 1 (from .83)
Bk Mtl. up 6.4% to .25 on Feb28 (from 1.88)
Cdn Util up 4.7% to .45 on Mar 1 (from 1.72)
Current: Notice the tiered list. Energy utilities on top, banks in the middle, and telecoms on the
bottom.Generally, a good time to consider buying energy utilities, maybe certain banks but
definitely not telecoms.
I still like Sceptre Invest. Counsel. Nothing has changed that I know of. The price is down. It
happens. It's only been a few months. One can't expect a price rise soon after purchase. I bought
more at $14.80.
If you own BCE on "the date of certificate arrangement", your dividend on a smaller BCE share
will be $1.20 and on your Nortel share spinoff will be about.17. In total, maybe a cent higher than
the dividend now.
Pacific Northern Gas' 1999 earnings are up to $1.92 a share from $1.73 the previous year.
However, PNG is not risk free yet. It could still lose two of its largest customers, a methanol and
an ammonia plant.
Banks have begun to move up the list (down 40%), but I'm not touching them yet. You won't
either if you read the Jan.22 issue of The Economist...four page cover story on the amount of debt
building in the U.S. "American households and firms have plunged deeply into debt." "If lots of
loans do turn sour..."