As investors it’s easy to get carried away at times. Imagining the rewards having picked the next explosive growth industry. The problem is others will have picked it too, and prices are likely so high in anticipation of over-hyped future returns that they have no place to go but down. In fact, it’s often the least exciting businesses that let investors get ahead in the market.
These companies may not be glamorous, newsworthy, or the next big thing, but they’re reliable profit machines and you can console yourself from the lack of excitement with the strong returns generated. Moreover, the consistently rising profits support growing dividend payouts – allowing smart investors to compound their wealth by reinvesting the hefty dividends. So move over The Wolf of Wall Street, here comes The Wolf of Bore Street.
The Australian Gas Light company, or AGL Energy Ltd (ASX: AGK) lit the first gas lamp in Australia nearly 175 years ago. That’s a long track record of success and as one of Australia’s leading retailers of gas and electricity it has defensive earnings streams capable of generating regular and growing dividends. With a focus on renewable energy; including hydro, wind, solar and geothermal, it’s also nicely aligned to the long-term trend of government support for the renewable sector.
Shares currently trade for $15.20, substantially below Morningstar’s recently upgraded fair value estimate of $16 per share. At current prices its offering a fully franked trailing dividend yield of 4.3% and looks a good investment.
APA Group (ASX: APA) is Australia’s largest natural gas transportation and infrastructure business and the last financial year saw it increase both revenue and adjusted profit by more than 20%. Total revenue was $1.27 billion and growth plans include the full takeover of Envestra Limited (ASX: ENV) in a deal valuing the takeover target at $2.2 billion.
It also has ownership interests in the Ethane Pipeline Income Fund (ASX: EPX), which pays quarterly dividend payments. Based on the top end of the Fund’s FY 2014 distribution guidance, it’s trading on a partially franked dividend yield of 7.8%.
APA Group has grown profits year-on-year for the last 10 years. It recently stated that it expects FY 2014 distributions per security to total at least 36 cents per share, which places it on a forward dividend yield of 6% and makes it a highly-attractive proposition.
Origin Energy Limited (ASX: ORG) is another business with defensive earnings and solid growth prospects. It offers investors exposure to commercial oil and gas exploration and production alongside retail energy supply. According to Morningstar, earnings per share are forecast to grow from 69.6 cents per share (cps) in FY 2013 to 86.3 cps in FY 2015. The company pays an attractive trailing dividend yield of 3.6% and appears well positioned for steady capital growth.
When it comes to investing, often boring is best. So Bore Street it is, and utility companies with reliable earnings, low debt and relatively little competition should form a balanced part of every intelligent investor’s portfolio.
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Motley Fool contributor Tom Richardson has no interest in any company mentioned in this article. You can find him on Twitter @tommyr345
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