Friday, November 16, 2012

New Purchase - AVA

I added 53 additional shares to my Avista holding.  This particular purchase will increase my annual income by $61.48 and comes with a solid yield of 4.95%.  I haven't purchased any utility stocks since 11/17/2011 so it's been a whole year!  As an income investor, I'm a huge fan of utility stocks.  I like the safety and stability this particular sector offers.  However I felt the sector was overvalued most of 2012 which is why I haven't bought any utility shares in a long time.  Post election, utility stocks are looking attractive once again!

Avista is a electric & gas utility that operates in Washington, Idaho, and Oregon.  Power sources: 51% hydro, 36% natural gas, 10% coal, 2% biomass, 1% wind.  Shares of its stock are currently trading at the 52 week low due to a poor earnings report.  AVA is a dividend contender with a 10 year streak of rising dividends.  I anticipate future dividend boosts to be modest but higher than inflation. 

It seems utility companies are going through a transition right now.  The trend is moving away from coal power generation and moving towards natural gas.  There are a couple factors impacting this change.  First of all, the Obama administration is keen on clean energy.  EPA regulations are tightening down on pollution controls which makes natural gas a good solution.  It's a lot cleaner than coal.  Many coal power plants are old and need to be upgraded.  Even though carbon-capture technology is available to reduce coal emissions, the technology is expensive to install.  Secondly the US has access to a massive reserve of natural gas due to new drilling methods.  With such a huge supply, the price of the commodity is now very cheap.  The way I see it, cheaper raw materials, lower emissions, and government regulation is the driving force for the future of natural gas power generation.  I expect coal powered generation to diminish over time.

Right now I own only two utilities.  AVA from the northwest and UNS from the southwest.  I'll be looking to add 2-3 additional utilities to my portfolio in the coming months.  I currently have a limit order in for SO and like what I see from PPL.  This would complete the geographic diversification I'm looking for.  Besides utilities, I'm currently interested in O, RSG, TD, INTC, and perhaps NSC.  I've made quite a few purchases this month and might have to pace myself a bit.  Its hard to keep money on the sidelines right now as investor fear mounts and prices fall.


  1. Nice buy on AVA! I like utilities as well right now, and am looking at DUK and SO.

    I haven't done too much research on AVA yet, but I see that it's very cheap right now, has a high yield, and is a smaller cap serving the Pacific Northwest. Is it the dividend growth, or lower payout ratio/room for future increases what makes this company more attractive then the larger utilities?

    This shift away from coal generation would heavily impact companies like SO and DUK in the short term, since they rely a lot on it. Long term, I'm not too concerned, since SO, for instance, has a new nuke reactor they are trying to get online by 2016/2017.

    I'm hoping the price will drop a bit further until I can add funds to my account. I really like to idea of diversifying to achieve geographical coverage. You never know with mother nature!


    1. When I first bought this one yes it was the payout ratio and the historic dividend growth. That and the generation mix. Also this one is a gas AND electric utility. SO for example doesn't sell gas, but does have other businesses such as wireless telecom service.

      I'd rather have 4 or 5 equally weighted utilities, but decided to add to AVA right now because it has been a solid holding for and I like the price it's trading at. The payout ratio is normally lower but the last earnings report was a disappointment.

      I think in the end I will own a minimum of 4 electric/gas utilities plus one trash collector. I currently have a limit order in for SO. I'm a fan of that particular company too.

  2. Nice pickup. I'll have to take a look at AVA, it's not currently on my watch list but may warrant a position with that yield and streak. After selling DUK , the only true utility I own is NEE and after it's run up over the last year I haven't added to it.

    1. Yeah NEE has been on a tear the past year. I looked at in the past but ended up selecting different utilities which was a mistake. It's way too pricey these days so it's not on my radar anymore. I also worry about hurricanes with that one.