Thursday, August 17, 2006

Usually I focus on a specific company but, since I like most (not all) stocks in the electric utility business I decided to profile the entire industry (or at least most of it). There is no competition and generally high dividends. While utility stock will not rise as fast as my other picks they will not fall as fast either. Utilities are generally one of the safest investments a person can make, a utility stock is also one of the first investments a new investor makes.

The first stock I'll look at is Hawaiian Electric Industries Inc. (symbol: HE). Hawaiian Electric Industries (I'll refer to it by its symbol: HE) supplies 93% of Hawaii's electric needs as well as owning American Savings Bank, one of Hawaii's largest banks.

HE's position as both a power provider and bank in the Hawaiian islands puts it in a good position to benefit from Hawaii's booming population and tourist industry. The stock is not expensive either, it trades at just seventeen times trailing earnings and it throws off a 4.5% dividend.

The stock's biggest long term advantage will definitely be its unique location. Hawaii is becoming an increasingly popular retirement destination among wealthy individuals. This influx of wealth will push up real-estate values and benefit the company's bank and the influx of population will add new customers to the ever growing utility. HE also has a lot to offer for those who are more concerned with short term result. To start with 8% of all outstanding shares where sold short, unfortunately (for the shorts who will eventually have to cover) the average daily volume is less than 3% of the shares short. That means that even if just a few shorts decide to cover their positions it could cause a big increase in price and set off a chain reaction.

For those of you who are interested in buying stock direct I suggest you check out this stock's DSP plan on the company's website by clicking here.

One utility that I'm not as optimistic about is Duquesne Light Holdings Inc. (I'll refer to is by its symbol, DQE). With a p/e of 18 the stock is overpriced compared to the rest of the industry. But, the problem with investing in this company goes far deeper than the price. The company has its main operations in Pittsburgh, a city who's population has been declining since the 1960's. This means a declining customer base for DQE and who really wants to invest in a company with a declining customer base? Especially when the company is paying out over 80% of its profits in dividends instead of trying to diversify and its 5% yield isn't even very tempting. This stock may fair all right in the short term but, in the moderate to long term it will this company is not going to be a profitable investment unless Pittsburgh's population trend reverse, which is not likely.

Buy stocks for $4