Switch Flipped on Electric Utility Stocks / but Og&e Is a 'Buy'
Leckey, Andrew A., THE JOURNAL RECORD
It is true that average dividend return has grown to an impressive 7.5 percent. That, after all, is what most conservative shareholders rely on electric utilites for in the first place.
Yet their stock prices plummeted a discouraging 9 percent at the very same time the Dow Jones industrial average was rising more than 18 percent.
A number of factors have flipped the switch on electric utility stocks. Traditionally interest-sensitive, they were hurt by the sudden rise in interest rates.
At the same time, state regulators basing rate decisions on the low-inflation, low-interest-rate 1980s have gotten considerably tougher on requests for rate increases and funding of nuclear construction.
In addition, many old-line industries are reviving, offering greater promise for stock price appreciation than highly regulated utilities. None of which makes the near-term outlook much brighter.
``Electric utility earnings growth will slow and dividend increases will fall off,'' predicted Gregory B. Enholm, analyst with Salomon Brothers Inc. ``Most stocks will be only average market performers.''
At this point, according to Barry M. Abramson, analyst with Prudential-Bache Securities, it makes sense for investors to ``look to electric utilities for yield rather than long-term price growth.''
As William Haugan, analyst with E.F. Hutton & Co., puts it:
``The regulators are now in the driver's seat and investors should be selective about any electric utility stock.''
With the safety of dividends of primary importance, Wall Street is offering many ``sell'' recommendations on the more troubled electric utilities. For example, all three analysts agree that investors should sell the stock of Ohio-based Centerior Energy because of its woes tied to rate requests to cover nuclear plants.
Both Abramson and Haugan would unload Niagara Mohawk Power, due to persistent worries that it will drop its dividend. …