I have long thought that the best way to offset excessive bank charges was to own shares in the banks themselves. Likewise with communications company Telstra (ASX: TLS). This strategy has proven very profitable over the last few years. The banks and TLS have performed very well, delivering solid, yet unspectacular growth, plus great yields combined with capital appreciation, safety, and that feeling of smug satisfaction when the TLS bill comes in.
Since one of the biggest costs to any household these days is power, it may be time to put that strategy to work at AGL Energy (ASX: AGK). There are a variety of fundamental and technical reasons to look at this one, not least of which is a slightly satisfying feeling when the energy bill arrives, knowing that the pain is cushioned a little by owning the shares in the company that is taking your hard-earned cash out of your pocket.
AGL has a 8-9% growth outlook, and is trading at a P/E of 12.Even the yield is attractive at around 4.7% fully franked, coupled with blue-chip status in a solid sector with mandated price increases. It is also a beneficiary of the erratic climate changes we seem to be experiencing in Australia these days, with erratic summers and colder winters pushing our air conditioned households towards higher energy consumption. Utilities are not the most exciting stocks to own, it’s true, but this one tends to trade in a range of $14 to $16, and as it currently sits below that range, it is certainly worth a look.
Of course there are always risks. CAPEX blowouts, increased regulatory pressures, increased competition, and changing consumer habits due to excessive pricing are always a possibility. However the market seems to be taking a slightly too pessimistic view on the outlook at present.
Especially when I look at the shares that are currently sexy, it’s the defensive stocks that offer good fully franked yields, in businesses that have high barriers to entry. Growth is a positive, and AGL operates in a highly regulated and therefore somewhat protected environment, which adds another tick in the boxes. Now of course, in time the market will start to embrace risk and look for more capital growth but with all the issues facing the world at the moment, we may be some way off that rotation, so until we have world peace, no fiscal cliff, and Europe is solvent again, defensive businesses are a great way to go.
So next time you get that horrible power bill, yell at the kids for leaving lights on, try to remember to turn all the plugs off at night and not use the tumble dryer, wouldn’t it be a small consolation that you own part of the company that is causing all this angst?
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Motley Fool writer/analyst Henry Jennings doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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