Conrad's Trio of Global Utilities

10/20/2016 10:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

The US dollar’s strength over the past few years has punished the price of almost every international utility stock and reduced the US dollar value of the dividends that these companies pay, explains utility sector expert Roger Conrad, editor of Conrad's Utility Investor.

Despite the lackluster growth rate of recent years, the US economy remains a point of strength in the global economy and a major destination for other countries’ exports.

Investors should consider adding high-quality international utility stocks to their portfolios for three reasons: diversification, favorable valuations and exposure to powerful secular growth trends.

We continue to eye Enel (Milan: ENEL; OTC: ENLAY) and Terna – Rete Elettrica Nazionale (Milan: TRN; OTC: TEZNY) for potential inclusion in our Aggressive Income portfolio.

Terna – Rete Elettrica Nazionale, the safer of the two, generates the bulk of its cash flow from operating Italy’s power grid and generates a highly predictable stream of revenue. Its American depositary receipt rates a buy up to US$15.

With few remaining consolidation opportunities in Italy, management has targeted growth opportunities in Greece and Latin America. The company recently won a US$230 million contract to build a 132-mile power transmission line for Uruguay’s state-owned electric company.

Beset by weakness in Brazil and other Latin American markets, Enel has sought to shore up its balance sheet by reducing the dividend and divesting noncore assets.

In the first half of the year, the power company benefited from a strong showing by its retail segment. Enel’s ADR rates a buy up to US$4.50 for aggressive investors.

By far the most speculative of our portfolio holdings, Telefonica (Madrid: TEF; NYSE: TEF) has pushed to reduce its leverage; this now hinges on the successful initial public offerings of its UK wireless business and Telxius, its infrastructure business.

On the plus side, Telefonica’s businesses—including those slated for IPOs—continue to perform well. And the company continues to build an industry-leading position in Brazil.

Telefonica’s ADR rates a buy up to US$10 for aggressive investors. Prospective buyers should note that Spain withholds 20 percent of ordinary dividends, which American investors can reclaim by filing a Form 1116 with their US taxes.

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By Roger Conrad, Editor of Conrad's Utility Investor

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