tbul@trsvax.UUCP (08/31/84)
#N:trsvax:52900023:000:2061 trsvax!tbul Aug 31 12:34:00 1984 UTILITIES --------- Most utilities are noted for their stability. All utilities are regulated; their charges are set by a government body. Utilities do not generally carry inventory and the problems associated with it. Utilities do suffer from fuel costs and pollution controls (environmental problems). Sales of electricity to industry represents almost half the electric business. Gas reserves have been depleted and a gas utility is regulated more stringently than is an electric utility. Where a gas utility serves residential customers, its earnings will be more stable than one that serves industrial customers. O For a utility, a depreciation reserve in excess of 20% of gross property is excessive. O Combined charges for maintenance and depreciation expenses should be about 15% of gross revenue. O Most investors choose utility stocks on the basis of dividends. The higher, the better providing that it is 'safe' (see below). O A safe dividend is covered by large earnings. The payout ratio is small for the utility compared to the average utility. Therefore, it has more room to grow. O A utility which serves both gas and electricity has no real competition at all. Look for a utility with this composition. O The current ratio for a utility is a little over 1:1. O The telegraph utility is perhaps the most sensitive to a severe recession. Competition from long distance telephones has hurt and the strong labor environment is not advantageous. O Consider the geographical area for a utility. Is the population of the area growing? O Is the industry in the area growing? O Is the utility dependent on heavy industry or does it serve the public? If dependent on heavy industry, earnings will fluctuate more. O Is the area that the utility serves diversified (does it have a diversified industrial makeup)? O What is the attitude of the regulatory body serving the area? O What is the potential for growth of the utility? O What is the P/E multiple and how does it compare with other utilities?