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Show Income and safety: right utility stock provides both What is the utility's fuel mix? A company that uses hydro (water) or coal as its chief power source is in a strong position. More risky, because the future price and supply are uncertain, is a company that relies heavily on natural gas or oil. Is the proportion of residential residen-tial to industrial customers balanced? ba-lanced? A company that relies too heavily on a few industrial custom- earnings. The current yield for such stocks is about 5Vz to 8 percent. per-cent. Due to the relative strength of their earnings capacity, they have the potential for significant capital appreciation. After deciding which type of utility util-ity stock income or growth is best for you, work with your financial finan-cial consultant to make sure you understand the risk factors on a specific issue. The questions to ask: How is the stock rated? The standard investment rating services ser-vices such as Standard and Poor's and Moody's evaluate each utility stock, as does a special utility rating rat-ing service, Duff and Phelps. A high rating means the financial condition con-dition of the utility and, by implication, impli-cation, its dividend rate is regarded re-garded as sound. What is the utility's exposure on nuclear plant construction? If the company has been operating a nuclear plant for some time without with-out problems, the risk is far less than that of a company with a unfinished un-finished nuclear plant. Editor's Note: Charles Baker is a longtime long-time resident of Woods Cross and is a financial consultant at Shearson Lehman Leh-man Hutton in Salt Lake City. By CHARLES D. BAKER One of the most difficult decisions deci-sions you regularly have to make as . an investor is whether to put money into a stock that yields more-than-average income and is also more risky, or to go with the lower yield and somewhat safer investment. in-vestment. For years, the stocks of local electric utility companies have given investors the best of both worlds by providing relatively high income and relatively low risk. More recently, though, huge cost overruns on some nuclear power O plants and uncertain regulation have raised new questions about the risks of these stocks. In fact, you can still find many low-risk utility stocks that will provide pro-vide a flow of dividend income higher than that of most common stocks. Some utility issues offer the prospect of capital gains. Which type you choose will, of course, depend on your particular investment needs. If you primarily want current income, in-come, ask your financial consultant consul-tant about income utility stocks. Generally, these are companies that are completing nuclear construction con-struction programs, and have incurred in-curred large expenditures. They often are able to pay higher dividends. di-vidends. Current yields on some of these stocks are around eight to 1 1 percent. If you're willing to sacrifice some income now for the prospect of future capital gains, ask your financial consultant to identify growth utility stocks for you. These are likely to be companies that have strong cash flows, minimal capital expenditures and relatively low construction activity. activ-ity. Many of these utilities may also have some diversification into non-regulated non-regulated businesses generating additional earnings. As a result, they may pay somewhat some-what lower dividends relative to ers can run into problems if a local plant closes or if that particular industry in-dustry incurs a slump. Investor demand for utility stocks usually picks up as interest rates fall because interest is a major expense for almost all utility companies com-panies and current high returns offered by many utilities frequently exceed money market rates. Obviously, Ob-viously, however, these are just some of the factors to consider if you've decided that utility stocks meet some of your investment needs. |