What if you could double your money with a low risk, little-known utility?
One that has a very safe yield of 5%… A 68-year dividend growth streak… That government regulators force to print profits…
And whose massive comeback will start in the next 6 months…
Today, I am going to tell you about an income generating utility no one else is talking about. And this income stream comes with double-digit capital gains potential.
The Perfect Set Up
Since the market’s October lows, the S&P is up almost 30%, while utilities are basically flat.
And uncertainty due to interest rates and inflation has knocked the sector down to discounted levels.
This has created the perfect set up for the today’s utility recommendation.
Let me explain…
Utilities cannot charge whatever rates they want. Government regulators control how much a utility can make.
This number is called the allowed return on equity. In most states, this number is between 8 to 10 percent. Think of it like government contractors who are guaranteed a fixed profit.
When a utility builds a pipeline for example, it gets added to what is called the “rate base.” That’s the value of the regulator-approved assets that the utility owns and can make money off of.
Most of the time, utilities will finance new projects with a mix of debt and selling new shares to investors. The allowed return on equity dictates how much investors will earn.
So when interest rates spike, or inflation increases wages, the utility passes the cost on to customers and investors still earn the same return on equity. If the utility earns more than it should, it has to dial back rates for customers to get back to its allowed return on equity.
It’s an incredibly stable and predictable business. That allows utilities to pay reliable dividends. Minus one big catch…
Regulators can decide at any time to cut the return on equity of a utility. And it can have massive consequences for companies in high interest rate environments like those we are seeing today.
A study from Berkley found that if regulators don’t allow utilities to pass on higher rates to customers, their stock price can fall by 18% for every 1% hike in interest rates.
So the key to finding the perfect utility investment lies not only in the quality of the company itself, but also the kind of relationship it has with its regulators. And lucky for you, this high interest rate environment along with investors’ fears… just created the perfect set up for one of the best utility buying opportunities in the last two decades.
I don’t expect this great setup to last long, and that’s why I’m sharing it with you today.
The Utility Opportunity No One is Talking About
So what is this incredible buying opportunity I’ve been talking about?
Northwest Natural Holdings (NWN). An Oregon and Washington State-based gas utility serving 2.4 million customers.
It is one of the safest companies on earth that no one has ever heard of. In 2022 and 2023 Northwest Natural was recognized by Ethisphere as one of the World’s Most Ethical Companies.
It has a 68-year dividend growth streak and is tied for the longest dividend growth streak in the world.
Not only is it A+ rated by the S&P (one of the best credit ratings), it has a friendly relationship with its regulators. And right now, it’s beaten down even more because of its below-average profitability.
NWN is trading at a 30% historical discount. The last time it traded this cheap was during the Great Recession. That makes it a steal at current levels. And what investors haven’t taken into account – is the fact that when inflation is high, regulators are more likely to allow faster and stronger rate increases for utilities to offset rising costs.
This is why NWN management and analysts expect Northwest Natural to be able to pass on higher interest costs within 12 to 18 months from now to customers.
As soon as rates stop rising, a 6-month countdown clock will start counting for when Northwest Natural will take off and return to fair value and beyond.
Guess what just recently happened? Interest rates just set a new high. And the bond market is signaling that we just hit peak rates about one month ago. The 6-month profit clock likely started ticking one month ago.
So if you buy now, what can you expect for a return?
Thanks to a very safe 5% yield and that incredible discount, we anticipate a 39% upside by the end of the year. And an over 100% return by 2028.
S&P index investors will be lucky if they are flat by the end of 2024. While Northwest Natural investors are potentially looking at a large double-digit gain.
Don’t miss out on these massive income generating profits.
Safe Investing,
Adam Galas
Analyst, Intelligent Income Daily
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Source: Wide Moat Research