April 13, 2012
Written By Chloe Lutts Jensen
“Empresa Nacional de Electricidad (EOC – yield 2.90%), or Endesa Chile, is Chile’s largest electric utility, where it holds about 35% of the market. About half the company’s earnings come from Chile. But while Chile represents the company’s largest market, it is also a major player throughout South America. For instance, Endesa is the largest electric utility in Argentina and Peru. It’s the second-largest in Colombia, and it also has a stake in power generation in Brazil.
“Here in the United States, investors call utilities ‘widow and orphan’ stocks. Electricity demand is stable, so these stocks are depended on to deliver steady returns and pay consistent dividends. … Basic services like electricity and running water are necessities. Demand doesn’t fluctuate much, even when the global economy turns south. When you invest in a utility stock like EOC, you get the security of investing in a company whose product is in constant demand. But foreign utilities like Endesa Chile offer another advantage—incredible growth. You see, electricity demand in the U.S. is pretty stagnant. But in foreign markets like Chile, electricity demand is booming. For example, Chile’s electricity demand is up 46% in the past decade. Brazil’s is up 33%. Peru and Argentina have both witnessed demand growth of more than 60%. By comparison, electricity demand in the U.S. is up only 7% during the past decade. … But here’s the real beauty of this investment: There is not a more ‘foolproof’ way to invest in the growth of foreign countries than with utilities. Future demand is nearly guaranteed. At the same time, another company can’t simply come into the market to compete. It’s impossible to beat that combination of growing demand and no competition. … Endesa’s electricity prices are regulated by the government and allow for a sufficient profit while also being indexed for inflation. Sixty percent of Endesa’s electric sales in Chile and 50% in Colombia (the company’s two largest markets) were at regulated rates in 2011.”
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Paul Tracy, StreetAuthority’s Top 10 Stocks, March 31, 2012