Investing In Utilities: What Your Savings Account Can’t Do, This Resource Sector Can…

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Add A Little “Base-load” To Your Portfolio…

By Matt Insley

Dear Resource Hunter,

As I’ve said here before, the global economy — actually, the global economy controlled by government intervention — is creating a war on savers.

Our own Federal Reserve has relentlessly beaten the yield out of savings accounts. By artificially lowering interest rates, banks can get all of the cheap cash they need…and therefore, don’t need your money…and thus, pay you the equivalent of nothing in terms of interest.

This situation is sucking the savings out of America. It’s happening on a global scale, too.

But there is a way to make sure you’re actively saving and building your wealth (two important pillars of a healthy economy.) It’s a special resource sector that should be part of your long-term portfolio. And today I’m going to give you all the tools you need to get started….

If you’re like me, neck-deep in the resource markets (God help you), than you’ve likely seen the growing importance for one ho-hum energy sector: utilities.

Today, I want to show you why investing in long-term utilities can be your saving grace…and your savings account.

The Growing Need For Yield…

Prices for commodities popped this morning, you know why?

More talk from the European Central Bank (ECB) and its intention to flood the market with liquidity. Simply put, that means Mario Draghi, the Ben Bernanke of Euroland, is about to start printing euros.

This will happen creatively, of course. We’ll likely see a round of bond purchases from ailing Spain and Italy. Plus, something is sure to stir up with Greece, too.

Add it all up and this “added liquidity” is going to ruin the long-term outlook for the euro currency. It’s also going to ruin the savings of those holding it.

It’s the same thing that’s happening here at home with the U.S. dollar.

Call it money printing, interest rate cuts, bond purchasing, quantitative easing or what have you…it all has the same negative effect on your long-term savings.

Add that currency devaluation to increased taxation and you’ll see that we’re really in a pickle.

It doesn’t matter who’s in office in Washington, either.

“Regardless of who wins the presidential election, if you’re middle class, one outcome is certain: Your taxes are going up” Bloomberg reports. And that’s a mainstream news outlet reporting this!

Now’s the time to make sure your hard-earned greenbacks are protected. Please note: your savings will NOT be protected under your mattress, in your local savings account or in U.S. treasuries.

Instead you need to look at a way to protect your wealth and earn some dependable interest yield. That’s where this consistent energy sector comes in to play…

Benefits To Investing In Utilities…

Electric utilities are boring. They set up uber-long-term contracts with energy providers (say, Chesapeake Energy for natural gas supply.) And they simply transmit the energy and collect fees from electricity users.

Lots of utilities also own transmission lines, pipelines and other vital energy infrastructure that they can charge energy “tolls” from.

Most of the time these energy providers don’t care what the price of energy is, they simply take their cut of the pie from consumer’s electric bills. And best of all, with U.S. electricity consumption near all-time highs, and trending higher, utilities offer us a long-term way to cash.

The key to this whole investment idea is that utilities provide stable growth for your portfolio and pay consistent yearly dividends.

Add it up and this is like “base-load” for your portfolio.

Our Top Utility Picks…

To get your jumpstarted in the utility sector, here are my three top picks. All three offer a substantial dividend and a stable business model. Take a look:

Dominion Resources (D: NYSE) — 3.9% yield
Dominion provides energy for the mid-Atlantic and also controls a large swath of natural gas storage in the region. The company has gradually and consistently increased its dividend from 2007 to present. Its quarterly dividend went from 36 cents to 53 cents, representing a 47% increase over the past five years. That’s the kind of consistency that we’re looking for.

Pepco Holdings (POM: NYSE) — 5.5% yield
Pepco operates utilities in Washington D.C. and gives us a unique opportunity to profit from America’s growing government. Heh, the more hot air that congress blows the more they have to crank the AC, right? All jokes aside, D.C. is one of the few cities unaffected by much of the recent recession. Pepco gives you an inside track to play it. The company increased its dividend from 2007 to 2008 and has held it constant ever since. Again, consistency is key here.

The Southern Company (SO: NYSE) — 4.2% yield
Similar to Dominion, The Southern Co. gradually and consistently increased its dividend from 2007 to present. Its quarterly dividend went from 39 cents to 49 cents, representing a 25% increase over the past five years. This is the biggest name on our list, so it represents a large, stable utility that has exposure to hydro, solar, nuclear and fossil fuel energy transmission.

 With no traditional savings options left, these utilities offer a solid way to protect and grow your wealth.

The list above offers dividend payments around 4%, which will beat the pants off of the highest yielding savings account or treasury. Plus, if inflation kicks into high gear you can expect share prices to rise for these staple commodity providers.

Now’s the time to add a little base-load to your portfolio, with utilities!

Keep your boots muddy,

Matt Insley

Author Image for Matt Insley

Matt Insley

The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources.  He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.  Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department.  Over the past years he’s stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

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