Utility Stocks by Malcolm Berko on Creators.com

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Utility Stocks

Dear Mr. Berko: I'm thinking of buying 150 Progress Energy and 100 FPL Corporation, two Florida utility stocks. What do you think of them? Also, I bought 1,000 shares of Prestige Brands last July at $11.23 and I'm now down 4 points. I know what happened to the company, but I don't know if I should sell the stock, keep it or buy more shares. So I'd appreciate your opinion on this stock too. F.L., Springfield, Ill.

Dear F.L.: I like Progress Energy (PGN — $37.15) primarily for its $2.48 dividend, which is well covered, yielding 6.6 percent and has increased in each of the past 20 years. PGN became one of the largest regulated utility companies this side of the Mississippi when it merged with Carolina Light and Power in 2000. And I like PGN's high power rates, which will increase again in January 2010 and will impressively improve PGN's return on capital. I like PGN because I believe the board will continue to raise the dividend as a consistent rate. I also like PGN because I think the stock could trade in the high $40s within the coming three to four years.

FPL Group, another Florida utility (FPL — $49.30) has 4.5 million customers in a 27,000-square-mile area in the eastern and southern part of the state. Several industry analysts believe that FPL will increase earnings by 17 percent in 2010 to $4.80 and to $5.50-$5.60 in the foreseeable future. The current dividend yields 3.7 percent. They also see the dividend growing from this year's $1.89 to $2.00 next year and Value Line believes FPL could be a $70 to $80 stock in the next four to five years.

I like Florida utilities because the Florida legislature is one of the most crooked, corrupt body politics in the nation and Florida's five utilities have the Florida Public Service Commission by their wallets. The cozy relationship between these utilities and the Public Service Commission assures each utility of brother-in-law tax breaks, special land use permits, higher consumer rates and myriad legislative favors even when strongly opposed by the public.

This incestuous relationship is so blatant that state businessmen seeking favors, utility executives, builders, insurance executives, developers, bankers and legislators drink, party and play together, fish together, attend football and baseball games, exchange gifts, and etc. Without question, the Florida Legislature is one of the best legislatures that money can buy. A fist full of dollars, a few cases of whiskey or gender favors can assure the giver of some very lucrative government contracts. A Florida state senator once told me, "Voters are sheep waiting to be fleeced. They think their votes count, but it's my legislature that counts the votes."

Prestige Brands Holdings (PBH — $6.83) is a $310 million revenue company. And PBH generated those revenues selling Clear Eyes, Murine, Chloraseptic, Compound W, New Skin, Dermoplast, Freeze Off, Percogisic, Sleep-Ex, Compoz, Comet, Choir Boy, Spic & Span, Denorex, Cutex, Prell Shampoo, Oxipor and myriad other brands, the sales of which are too small to be important to the huge firms that used to make them.

PBH outsources its production so the company has a very small capital investment. But the Street doesn't care much for PBH even though 321 institutions own over 78 percent of the stock and even though its book value is a strong $6.28. Earnings this year should come in at 71 cents a share and next year, under its new CEO, earnings could rise to 83 cents. I'd keep the 1,000 shares you bought in July 2008 at $11.23 and consider buying another 1,000 at $7.34. In the next 12 to 16 months, PBH could trade at the $11 to $12 level, and that's 50 percent to 60 percent appreciation. The last dozen months have been difficult for PBH, but I believe the new CEO, who has an impressive resume of successes and is well liked by his peers, should be able to move this company ahead.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.