Water costs going up

Let's see 13% increase in water utility, expect an increase in Con Ed, Real Estate taxes have been going up. Nope no inflation here.

©2010 Bloomberg News

By Chris Burritt

April 9 (Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, has reduced prices on more than 10,000 items after sales at U.S. stores dropped last quarter.

The company plans to cut more prices in the coming weeks and months, Linda Blakley, a spokeswoman for the Bentonville, Arkansas-based company, said today by telephone.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/04/09/bloomberg1376-L0MMKC1A1I4H-1.DTL#ixzz0khdl1kKC

wait a second...you mean inflation isnt uniform across the boards?

RS, you should pick up some ConEd stock. I got mine when the dividend yield was at a nutty 6.7%, but you can still pick it up at 5.3%. Earnings yield is around 10% even now. Cash on hand is only 3% of stock value, though, so I guess you wouldn't pay more than $1-2 for it. Funny how they paid out more than that in dividends over the last year, though. Hmm, strange, maybe best to ignore and post a random link.

Payout ratio is 75% I'll have to screen it further. thanks for the tip.

You're welcome, apologies for the snarkiness. Not my favorite holding as upside potential is quite limited, and I prefer buybacks to dividends. Nevertheless, a decent value on a risk-adjusted basis, IMO, and it puts a smile on your face every time your bill goes up.

Not snarky at all. But I did notice the dividend growth rate was nill.

Dividends have gone up 5.27x since 1970, the first data point on which I've got a dividend. During this period, CPI has gone up 5.7x, so it's tracked inflation more or less. Price is up 6.7x, also tracking inflation. I didn't look up book, but I'm guessing it's in the same ballpark. Price & book are where the difference between dividend yield and earnings yield end up.

Such is the nature of utilities: when you are regulated to inflation, everything moves with inflation regardless of what the market might be doing. Hence your bill increase despite the "bad" economy. Back when it was trading at $35, I was looking at a 10% earnings yield, plus 2-3% annual growth from inflation, on a company whose profits are highly regulated, and thus relatively predictable (though obviously not risk-free). If inflation spikes, the earnings are (more or less) inflation-hedged. Cost of financing was at maybe 4% using 30-year treasuries, which works out to 1-2% inflation-adjusted assuming 2-3% annual inflation. So basically, an 8-9% risk premium for a utility when short-term rates are at 0%. Fantastic.

So here's a utility paying a 10% yield indexed to inflation. Then there's NYC RE paying a 2% yield (4-5% rent yield minus 2-3% for maintenance, taxes, and transaction costs), also indexed to inflation. The former's got a 8-9% risk premium, plus an inflation hedge. The latter's got a 0-1% risk premium, plus an inflation hedge. As far as I can tell, the risk of the two, while arguable, is not several times different.

Guess where I put my money...

thxs for the coned pickup... I'm all in monday.. :)

the $50K in chking that is :)

Toss up btwn paying off wife's 4% car loan or stk pick.. you just made it easier inonada...

Well now that I've got you thinking about it, I really hope it doesn't blow up. I've only got a small single-digit percentage of my net worth in it myself, so don't go crazy on it on my account :).