Recent Buy

buyAfter my recent sale of my shares of Exxon Mobil Corporation (XOM), I decided to put that capital to work for me in my recent purchases. I was thinking about letting the capital sit in a cash position, as the market is not showing a lot of value at these levels. What I try to do, however, is not look at the market as a whole and instead look at individual equities and whether there is any value there on case by case basis. I especially like individual securities that have underperformed the market by a large margin, usually in a sector that has also underperformed the market as a whole. That leads me to the utilities sector.

The utilities sector is up 3.74% YTD, vastly under-performing the S&P 500 which is up 8.75%. The utilities sector is so far the weakest sector in 2012, which should come as no surprise after the monster run it had in 2011. In this individual sector there are securities which have shown even further weakness than the sector as a whole. I decided to put my capital from my XOM sale to work with two utilities, which I’ll discuss below.

As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.

For my first buy, I decided to purchase 55 shares of Avista Corp (AVA) on 2/27/12 at $24.84 per share. AVA is a regulated natural gas and electricity which does business in Washington, Idaho and Oregon. More than half of their power is generated through hydroelectricity, which I find particularly interesting and possibly exciting. They produce the rest of their energy through the use of coal, natural gas and wood-fired thermal plants. There is no particular catalyst that’s going to produce a ton of growth, but as a utility I’m primarily looking for capital preservation along with a decent yield. I get both of these with AVA. My entry yield on my purchase is 4.67%, with the safety of a regulated utility that provides services that people need everyday. AVA has a 5-year dividend growth rate of 14.1%, but we can see this slowing. The recent raise from a $0.275 quarterly dividend to a $0.29 quarterly dividend was only a 5.4% increase, which is still nice. I actually just missed this dividend, as it was available to shareholders of record as of close on 2/24/12. AVA is -3.5% YTD, vastly under-performing the S&P 500. Based on the current payout, I will receive $63.80 in yearly dividends from this position.

For my second purchase, I decided to buy 40 shares of UniSource Energy Corp (UNS) on 2/27/12 at $37.24 per share. I made this purchase for the same reason I bought shares with AVA. I’m primarily looking for safety of capital along with a boost in my portfolio’s overall yield. These two purchases provided that for me. UNS is an electric and gas utility that operates in Arizona. I think Arizona is a good spot for an investment in a utility due to the lack of natural disasters that can cause huge capital interruptions and outlays for a utility along with a growing population. UNS is up 2.03% YTD, also well under the performance afforded by the S&P 500. The entry yield on my purchase is 4.61%. The 5-year DGR for UNS is 14.9%, but this another case where we can see the growth slowing. The recent increase, announced today, was only 2.1%, but I do believe the increases in the future will likely be 5-7% as UNS targets a 60-70% payout ratio. I believe UNS is a solid business, but the weak balance sheet does leave a little to be desired as the debt/equity ratio is currently at 2.0. I hope this is something management can work on in the future, which will depend on the rates UNS is able to receive and the population growth they experience. Based on the current payout, I will receive $67.20 in yearly dividends from this position.

I’m fairly happy with my two purchases. I haven’t previously owned any positions with utility companies for a couple reasons. First, they are typically slow growth businesses as they operate in a highly regulated industry. Second, they are extremely capital intensive and asset heavy, which can be a drain on every invested dollar as well as leading to higher debt on the balance sheets. However, they provide a service that people absolutely require for day-to-day life and as such they provide a relative safety of capital. Also, they tend to have higher yields as they tend to return a lot of shareholder money through dividends. It is because of these pros and cons that I will try to target a 5-7% allocation to utilities in the future. I enjoy the higher yield that they can provide my portfolio, but I’m not particularly enamored with the debt loads that utilities carry or the regulation in which they operate. I am comfortable with a modestly small allocation toward this sector.

I now own 25 positions, since selling XOM and investing with AVA and UNS.

I usually include analyst opinions on my purchases, but in this case this case these two utilities are too small in market capitalization for Morningstar to cover.

I’ll update my Freedom Fund in early March to reflect my recent purchases.

What are you buying?

Thanks for reading.

Photo Credit: Stuart Miles/


  1. says

    Hi DM,

    Those seem like good utilities and the 4.6% yields are nice. My portfolio is still without any utilities, but I will likely add some eventually.

    I have no new purchases to report. It looks like the addition to my GIS position (two weeks ago) will be my only transaction in February, but that’s okay. Later this week I will be adding new capital from my February savings and that will give me enough cash for two medium-sized purchases (or three small ones) in March. Now if only we’d get a nice pullback!



    • says


      Your portfolio is looking good, my friend. I’d like to have GIS at some point. We’ll see.

      I’m with you on the pullback. I’m also waiting patiently. I’ll likely be slowing my purchases down until we see something. I’m okay with building up some cash in the meantime.

      Best wishes!

  2. says

    Great quality buys DM! What are your thoughts on ED and SO? Those are the 800lb gorilla within the industry. I never understood how utilities are able to pay dividends when they’re free cash flow don’t cover the dividend paid.

    As for recent buys, I picked up Realty Income (O). Thought it was a perfect for the portfolio after reading their annual report. Just wished I bought it cheaper…

    • says


      Thanks for stopping by. I wouldn’t mind SO at some point, but I find it pricey at current prices. ED has dividend growth that is way too slow for me. I like it’s geographical footprint, but the growth just isn’t there for me.

      O looks solid, and there are a lot of fans of that business. I’ll have to give it a second look at some point. I don’t have any REIT’s or MLP’s at the current time. Still keeping things simple. I hope O treats you well. Gotta love those monthly dividends!

      Take care!

  3. Anonymous says

    PPL in another great energy company with a 16B market cap and a P/E of just 10.9 and pays 1.44/ %5 yield. I hope you the best and keep it up. I log into your blog regularly.

    • says


      I haven’t really followed PPL. I believe they froze dividends for more than one year if I’m correct. If I was to invest in a 5% yielder utility, this one might be okay and EXC also comes to mind. Although the dividend hasn’t been growing, the price is cheap and the yield provides some return while you wait.

      Best wishes!

  4. says

    I want growth in my holdings so I think I will keep from the utilities for a while longer. Those yields are enticing though.

    I just bought 45 shares of SU at $34.40. The yield is 1.3% and has increased for the last 10 years I think. It is a capital growth as well as a dividend growth play for me right now.

    Good job getting to 25 holdings.

    • says

      Poor Student,

      I hear you on the growth. I love growth as well, but I feel comfortable having a small 5% allocation or so to utilities.

      Keep in mind that utilities grow as well, and if you look at some popular and large utility companies you can see they provided quite a large return last year which probably explains the weakness to start 2012.

      Best of luck on SU. I don’t follow it, but I do remember reading good things about it here and there. Small yield, but if it grows at a large rate you could be sitting on a big YOC in a short period of time.

      Best wishes.

  5. Whit says

    Dividend Mantra,
    Just wondering what your thoughts are on the new proposed tax structure that will most likely affect taxes on qualified dividends? The political clout surrounding for example Mitt Romney who pays a much lower rate than most Americans due to his income mostly consisting from dividend income.

    As such future policies could hurt retail investors such as yourself, do you have any preparations for the likely tax hike on your dividends? We’ve experienced a boom in dividend payouts from companies over the past decade. Once the 15% rate goes up to possibly even 45% (!) companies will pull back on these payouts. It will detrimentaly hurt those who do save and properly manage our finances.

    • says


      Well, as I understand it that tax would only apply to people making over $200k a year or couples earning more than $250k/year.

      While that is nice, a large spike in dividend taxes would surely change how companies distribute earnings to shareholders via dividends. I don’t think anyone really knows exactly what would happen, but I certainly hope that a tax code like that doesn’t pass into law.

      We’ll see what happens.

      Take care!

  6. says

    Nice picks Mantra. I like utilities, even though they have a lot of debt they also tend to have big wide economic moats.

    Whit- re: dividend tax, I feel you man! Here in Canada the new Harper government has really been putting the screws to retail investors in increasing dividend taxes for several years now. Ironically they cut corporate taxes with a lot of fanfare, but as we’re learning they are just pasing the taxes onto the average investor instead of taking it from the companies.

    • says


      I agree with you on the utilities. They are certainly not without their share of pros and cons. It’s important to weight these out properly and see if they are appropriate investments for you.

      Keep in touch!

  7. says

    Having a percentage of your investments in utilities is smart both from the increased yield as well as the stability they provide to your stock portfolio.

    Question though – Since I know you are investing for income once you leave the workforce have you started targeting when the dividend gets paid. As an example those 2 utilities both pay their dividends on the 3/6/9/12 monthly cycle. To more even out your income you would want to have a third for each quarterly cycle. For myself if 2 stocks are equal I purchase the one in the cycle that is currently lacking in income if that makes sense. Thoughts

    • says


      Thanks for stopping by. Thanks also for the encouragement. Much appreciated!

      I don’t really concentrate on the dividend payout schedules. I figure that once I retire I’ll likely have 40 or so companies paying me, so the diversification will likely smooth out any payment issues. Besides that, I’m fairly proficient at budgeting and saving my excess income so if one month pays me a much larger dividend total than I need than I’ll just let the excess capital sit in the brokerage account until I need it for the following month. I don’t spend 100% of my income now and I doubt I’ll be doing it then either.

      Hope that helps a little?

      Best wishes!

  8. says

    I own shares of both those utilities. They have been kind to me so far, although the recent UNS increase was a disappointment. Your UNS purchase was in time to collect the dividend next month, always a good thing. This move helps diversify your portfolio which will be very important when you are lving off your investments.

    Have you thought about any other sells? I’ve been contemplating selling my position in ITW, it’s seen a nice runup the past few months. I almost sold it this afternoon, but changed my mind at the last minute. PM and INTC are also on a tear, but I have confidence they will have large enough dividend increases to keep me invested. INTC is approaching a sub 3% yield, pretty crazy.

    • says

      Compounding Income,

      Thanks for stopping by!

      I agree with you that the increase for UNS was a disappointment, but I’m okay with it. I purchased after the dividend increase was announced, so I was aware of it. I expect that to increase in the future, and even just 5-7% increases will be better than some of the other utilities by far (EXC, ED, etc.).

      I haven’t really thought about any other sales to be honest. ITW has had quite a run in a short period of time…but so has a lot of other stocks. If I was to sell ITW, I’d probably then sell most of my other positions…and then it becomes a game of market timing. I sold XOM not only because of the run it had, but also because I was highly exposed to energy and the fact that it had a very low yield coupled with a low DGR.

      I hear you on INTC. It’s amazing how high and how fast the market has climbed. It doesn’t seem sustainable, so now would probably be a good time to build cash and be patient.

      Best wishes!

  9. Anonymous says

    Mantra, great minds…I’ve had both UNS and AVA on my watchlist for sometime now, attempting to decide between then. Maybe I’ll take your lead and buy them both.


    • says


      Sounds like a good choice there. I think both are solid, and to be honest I don’t really favor either one over the other. They are very similar in many metrics, but UNS has a higher debt/equity ratio. That might make me lean toward AVA if I was to pick only one. If you have funds to buy both, I’d do that.

      Best wishes!

    • Ben says

      i ended up going with AVA based on a better valuation per the Graham number, lower debt, and better diversification in their operations.

  10. says

    I’m buying EXC and SYY. I’m also keeping a close eye on BGFV as a “riskier” play.

    I like your idea to move into utilities and have been purchasing shares of XLU for my father’s portfolio over the last month or so as well.

    • says


      So good to see you around! I’m really glad to see you writing over at SA. Your articles are great.

      EXC and SYY are interesting. I’ve been a little concerned about SYY’s FCF payout ratio and the FCF in general. But, long-term it seems like a solid company. They are fairly dominant in their space.

      EXC could be a good move here. It’s certainly cheap and shows great support at the high-$30’s. Even if the share price moves slow, the yield makes up for that. I may strike at it at some time, as a smaller utility holding. The yield is enticing.

      Take care, and keep in touch!

    • says


      Seems like a solid move. I don’t hate EXC, but I’m a little concerned about the lack of growth. Could be a huge winner over the long haul, and the yield certainly keeps one satisfied while waiting. Seems extremely cheap, maybe I’ll have to take another look at it!

      Take care.

    • Anonymous says

      DM – If you think the market is going to rise a lot in coming month, EXC is probably not the stock to be in. But I have a number of stocks that should do well in that environment. I feel EXC will do well with is monster (and safe) dividend if we move sideways for a while. I hold it in my taxable account, and wanted something “safer” in case I need to buy a new car, home repair, etc…

  11. Scott says

    Congratulations on the utilities purchases. I have owned Duke Energy (DUK) since 2009. I DRIP the dividends through their direct stock purchase plan so I pay no purchase commissions. That results in a nice compounding effect. Good luck to all.

  12. says

    I believe that electric utilities are a really great value investment. Simply because very little additional electric capacity has been added over the last three decades. No nuclear power plants have been built over the last thirty years. China builds two or three coal generating power plants a week a week. In the united states theirs maybe one or two built a year.

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