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Do you like hamburgers?
By sheer happenstance, I found myself in Argentina a few years ago at the absolute peak of the country’s financial collapse. At the time, American Express and Capital One were offering a special “tourist dollar” exchange rate, something like $1 to 1,100 pesos.
That made many restaurants extraordinarily cheap. So cheap, in fact, that I’d regularly go to a local parrilla for lunch and order a “plate of the day” burger-and-fries special that, after the exchange rate, cost about $1.60.
These weren’t puny fast-food burgers either. As a daily special, they came with fries, bread rolls, sauces, salsas, and a beverage.
Anyway, eating those burgers got me thinking about finding a high-yield asset that could cover my lunch indefinitely. I’ve never liked covered call ETFs or mortgage REITs, two “investments” that tend to lose value over the long run, so I settled on Northwest Natural Holding Company ($NWN).
Northwest Natural Holding Company is a Dividend King operating in the utility sector.
The company provides regulated gas services to 2.5 million customers across Oregon and Southwest Washington. It also offers water and wastewater services in Arizona, Texas, and California. The firm has raised its dividend every year since 1956, and when I initiated my position, it traded at a price to earnings ratio of 14.55 while offering a 4.98% starting yield.
The biggest drawback was its anemic dividend growth. When I began buying shares in 2023, Northwest Natural had a 5-year compound annual dividend growth rate of just 0.52%.
Nearly three years later, that growth rate is still a paltry 0.52%. At least they’re consistent.
That said, slow growth can be offset by reinvesting dividends to accumulate more shares.
Additionally, my initial position is now up more than 53%.
Northwest Natural Holding Company went from being a boring company nobody wanted (“Who buys utility stocks?”) to delivering market-beating returns, driven in part by growth in its water utility segment.
This is less of a brag and more of an illustrative lesson: utility stocks often sell off or trade at abnormally low valuations because many investors view them as boring “boomer stocks.” While these businesses are generally slow-growing, they provide essential services that millions of customers rely on every day.
Utility stocks can also benefit from broader investment trends, like AI, because they supply the energy that powers the physical infrastructure behind emerging industries.
And unlike the speculative startups that depend on gas, electricity, and water, these utility firms are well-established and already profitable. When utility stocks sell off, and dividend stalwarts like Northwest Natural Holding Company or Black Hills Corporation offer 5% starting yields, they’re often “too cheap to ignore.” The 10-year performance may look embarrassing when these companies are at multi-year lows, but they are essential businesses that rebound once Wall Street sentiment improves or demand for energy rises with new technological developments.
Looking at the sector today, most utility stocks are probably reasonable buys. But, many have rallied significantly over the past 12 months.
Personally, I’d be extremely cautious about buying utility stocks right now. Many are still cheaper than the S&P 500, but they’ve risen sharply year-to-date. H2O America ($HTO) is up more than 22%, Portland General Electric Company ($POR) is up more than 12.5%, American States Water Company ($AWR) is up over 9.7%, and New Jersey Resources Corporation ($NJR) is up 23.8%.
That’s great news if you read the Dividend Insider special reports on these companies over the past year, did your homework, and decided to invest. But valuations are a bit too rich for me to keep buying at current levels.
Still, the sector is worth watching. You can do the research now and wait for the next pullback to buy long-term winners when they’re offering 4%–5% starting yields.
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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.
