The best corporate managers are always one step ahead. Salesforce is the second coming of Amazon.com...
Utility Duo: Defense Against Deflation
09/01/2015 7:00 am EST
We have long believed a long-term deflationary trend has been inevitable based on the amounts of debt that is being held by governments around the world and the fact they are not growing fast enough to pay it down, observes Richard Stavros, editor of Global Income Edge.
And with the latest market declines, the long-term and short-term deflationary trends all point to investing in regulated utilities.
These can pass on the impact of deflation and profit changes to their customers in the form of higher (or lower) prices.
Utilities are so resilient because when deflation reduces discretionary, people can’t skimp on electric power. It’s an essential service for which consumers will continue to spend.
So which domestic and international utility makes the best investments during periods of deflation?
Both are headquartered in countries with good regulation for utility profits. Southern in the United States and National Grid in the United Kingdom.
National Grid offers a stable 5.14% yield with strong international diversification. Based on its operating earnings in 2013, about 65% of its operations are based in the UK and 35% are in the US.
Southern Company is headquartered in Atlanta and operates in Georgia, Alabama, Florida, and Mississippi.
The company is involved in generation, transmission, and distribution of electricity through coal, nuclear, oil and gas, and hydro resources. The company also owns renewable energy projects.
Given the firm’s size and scale, during a deflationary period, we believe Southern Co. would be able to count on its regulatory relationship to continue to deliver earnings where other non-defensive firms would be forced to scale back.
Southern has steadily hiked its dividend, with payout growth averaging 3.7% annually over the past five years. SO is a buy below $55.
More from MoneyShow.com:
Related Articles on STOCKS
Now about new highs being celebrated, amidst deterioration of a slew of internals: This suggests nei...
Our daily breakout stock ideas are most suitable for aggressive investors seeking ideal entry points...
I understand, my views are not outside the mainstream, but long-term investors should buy Apple shar...