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One Industry Income Investors Can Count On

By Tom Dyson, publisher, The Palm Beach Letter
Monday, December 28, 2009

Progress Energy is an electric utility from North Carolina...

With $9 billion in revenue, 3 million customers, and more than 21,000 megawatts of capacity, Progress Energy is one of the largest electric utilities in the country.

Earlier this month, Progress Energy announced it would close 11 coal-fired power plants and revamp these plants to burn natural gas. These 11 plants represent one-third of Progress' total generating capacity in North Carolina.


Progress Energy's chief executive gave the correct political explanation. He told the Wall Street Journal these new plants would "reduce the utility's total carbon-dioxide emissions significantly." The CEO didn't mention how much money cheap natural gas will save his company, nor did he mention the government wants to slap a carbon tax on coal.

Graycor can see this trend unfolding firsthand...

Graycor is a heavy engineering company. It builds large industrial facilities like steel mills, cement factories, and power plants.

According to Graycor, gas-fired power plants are making a comeback. Graycor says the power industry is delaying or scrapping coal-fired power plants "due to environmental concerns." It's using natural gas to bridge the supply shortfall. Graycor says gas plants are cleaner, more flexible, and easier to build.

Graycor has recently built six gas-fired power plants in Nevada and Illinois.

Natural gas prices have fallen 75% in 18 months. With the huge new natural gas shale deposits coming on line, there's going to be an abundance of gas for many years to come.

Natural gas power is now the cheapest, cleanest major power source in America. All over the country, utility executives are looking at natural gas and wondering how they can introduce more of it into their power portfolios. That's good news for income investors...

It's tough to have confidence in the stock market right now. It's at least 40% overvalued relative to historical norms for earnings and book values. Meanwhile, the economy is in the middle of a $50 trillion debt deflation, and the government is trying to bankrupt itself.

The situation is especially difficult for income investors. After a 50% rally in junk bonds and a 40% rally in corporate bonds this year, high-yield investments are riskier now, in my opinion, than they were at the peak of the bull market back in 2007. Meanwhile, money-market interest rates are the lowest they've been in history.

Natural gas-fired electricity is one industry income investors can feel comfortable with.

Many natural gas utilities and power producers pay dividends. Earlier this month, for example, I found a natural gas-fired power plant stock paying a 10% dividend yield. (I've recommended this stock to readers of my newsletter, The 12% Letter.)

To analyze utilities and their dividends, I used Yahoo Finance's electric utility company browser. I looked for companies with power portfolios heavily weighted to natural gas and light on coal.

Thanks to the solid economic fundamentals behind natural gas power generation, gas-fired power stocks will generate a decent income and keep your money safe for years to come.

Good investing,

Tom




Market Notes


NEW HIGHS OF NOTE LAST WEEK

Note the broad swath of industries...
U.S. Steel (X)... steel
Alcoa (AA)... aluminum
Altria (MO)... cigarettes
Carmax (KMX)... used cars
Microsoft (MSFT)... software
Google (GOOG)... search engine
Gannett (GCI)... USA Today
Apple (AAPL)... iPods and iPhones
JDS Uniphase (JDSU)... networking
Blue Coast Systems (BCSI)... security software
Check Point Software (CHKP)... security software
Ivanhoe Mines (IVN)... copper and gold
Cresud (CRESY)... Argentine agriculture
Nordstrom (JWN)... expensive clothes
Kansas City Southern (KSC)... railroads
P.F. Chang's (PFCB)... restaurants
Plum Creek Timber (PCL)... timber
Massey Energy (MEE)... coal mining
Allied Nevada (ANV)... gold mining
Cameco (CCJ)... uranium mining
El Paso Pipeline (EPB)... pipelines
iShares Industrials (IYJ)... industrials
iShares Real Estate (IYR)... real estate
iShares Technology (IYW)... technology
iShares Transportation (IYT)... transportation
iShares Basic Materials (IYM)... you guessed it
Sugar ETF (SGG)... sugar
Copper ETF (JJC)... copper

NEW LOWS OF NOTE LAST WEEK

Not many... As you can see, it's a bull market.

In The Daily Crux



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