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Utilties could be next toll booth for automobile fuel. Gas stations….a dying breed?

February 4, 2013 Leave a comment

When you invest you have to look out 5, 10 and 20 years to catch some big trends and get in well before the Wall Street crowd figures it all out.  Case in point is the upward trend with both all electric plug in vehicles as well as hybrid plug-in’s.

These two types of autos are increasingly becoming more popular. The major auto manufacturers are producing increasingly more popular and affordable models.  The end user adoption curve is also beginning to pick up in this space. 

A little history.  First we had all gas and diesel vehicles.  Next were hybrid’s which simply paired gas with electric motors and batteries but had no plug in option.  Today the biggest trends are plug-in hybrid’s which allow you to plug in and charge an onboard battery for some base amount of electric only driving range (i.e. 10 to 50 miles).  Also pure electric only vehicles are now hitting new price and performance benchmarks with more on the way.

So what I do as a long term investor is look forward many years down the road (but not too many).  I see the day coming where a significant portion of the automobiles in service here in the United States are charging (think fueling up) off the electric power grid.  Many of these electric or plug-in cars are used for trips well within the electric range of the vehicle thus requiring no gasoline in the case of the hybrid plug-in’s. 

So how do we capitalize on this?  The answer is UTILITIES!  The regional utility companies are all poised to reap the tailwind this will begin to generate as these types of cars enter into service.  People will be bypassing gas stations and instead charging up from either home based electric chargers or high voltage-high speed public chargers.  All these pull right from the power grid supplied by the utilities serving their respective areas.

So a trend we will see is a drop in gas station fuel stops and instead that power coming right off the electric power grid.  Gas and oil companies will see less business at the retail end but increased sales of natural gas into the utilities as that will likely be the fuel of choice for electrical power generation for at least the next few decades.  Utilities become the new toll booth replacing fossil fuel gas stations.  This will create a new revenue tailwind and increased electricity demand for these lucky beneficiaries.

Some companies poised to reap these rewards in the coming years and decades are Duke Energy and Southern Company.  Two very large utility companies with huge footprints.  Each offers a substantial dividend with Southern Company paying 4.5% and Duke Energy paying 4.4%.  These companies will pay you to wait for this mega-trend that is beginning to emerge. 

Utilities also provide some stability to your portfolio while you wait.   These companies have solid and predictable revenue streams and are unlikely to blow up your portfolio like some riskier sectors might.

So put a little power in your portfolio.  Catch this wave before everyone else does.  That is how you make a fortune in investing.   Look down the road as the Oracle of New Jersey does and see what is coming before the pack does. 

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