RE: SE
Spectra Energy Corp. (NYSE:SE) was spun off from Duke Energy Corp. as of January 2, 2007 and does not have a LT track record like several of the other utility companies mentioned in the Citi Corp report. The spin off created a lot of debt and leverage for the company and SE is more vulnerable to the LT corporate debt market, economic slowdowns, or any of the other macro issues that may arise.
My plan was to see SE break through $20 then sell covered calls on my small holdings. I am in these utilities for their dividend stream and the appreciation is an added bonus. I like those companies that have an unregulated side to their business in exploration, NG collection and/or mining.
I have not made it through the entire report but saw no mention of my favorite speculation, Black Hills Corp. (BKH). (Note: My LT premise for Oil is over $100/barrel out through 2012 which should impact NG and Coal prices too). I want to add more at prices around $20 and am even looking at perhaps selling some naked Puts.
As long as the money market yields are low (below 2%), I have been putting money into the Integrated Natural Gas & Electric Utility sector. I have been buying those companies that pay a dividend 5% or higher (but now that's hard to find) and have an unregulated segment of their business in either coal or NG or distribution (ie pipelines & storage).
Most of the easy money has been made already, so to enhance my return, I am looking to write LT covered calls when the prices approach their LT MA (reversion to the mean idea). When there is added volatility and large price swings, I have a select few that I will sell naked Puts to establish a covered straddle combination with the strategy to sell the naked Puts at a lower strike price than the covered calls I have written.
I have no real exit strategy for any of my utility positions other than to peel off shares on any sustained interest rate hike by the FED. Hopefully, the utilities will have enough pricing power to raise customer rates in line with inflation and the price of their stock (and dividend yield) will not drop too much as the FED raises rates.
It looks like that the sector (in general) has moved 60%-70% above their Feb/March 2008 lows which means that there is only 30%-40% more upside. I will be looking for new buys in the pipeline & distribution companies since they should perform marginally better during any economic upswing.
Therefore, I have been buying TORTOISE PWR AND ENE (TPZ) in the IRA (w. dividends reinvested). This is one you have mentioned over the last few months. I think an entry point below $19 is a good accumulation price. Perhaps an exit strategy (for the taxable account) is to peel off the LT capital gain proceeds from the individual utility buys and build a position in the TPZ fund. This allows immediate diversification through a basket of stocks in the sector, dividends are qualified (and can be taken in cash), and the portfolio "Energy Infrastructure" sector holdings can be re-balanced from time to time by simply buying or selling appropriate amounts of TPZ fund shares.
My only concern w/ TPZ Fund is their limited track record as they have only been in business since August 2009.
EKS |
