MY INVESTMENT STRATEGY FOR 2012

After taking in to consideration the state of the U.S. and world economy I've decided to keep things simple for the first part of 2012 and invest in utilities.  I've written in earlier posts my reasons for believing utility companies will do well for the next few years, so I've picked out what I believe to be some of the best of the best to beef up the utility section of my portfolio and increase monthly cash flows.  Increasing monthly cash flow while keeping risk at a minimum is my biggest investment goal for the year. 

I'm still working on rebuilding my investment portfolio after the big payouts on health care from my heart attack.  Of course I still have the expense of ongoing care, with no insurance, but I've managed to keep expenses to a manageable level so far.  Things should be even easier as more of my old debts are paid off this year.  I should be entirely debt free by the end of 2012, which frees up money spent on debt for building my dividend stock portfolio.  I have already doubled my monthly cash investment and will continue to increase contributions as bills are paid off.

So the simple overall plan is pay off debt and buy utilities for 2012.  May not be the best of plans, but I'm sure I could do a lot worse. 

POWER UP YOUR DIVIDENDS WITH A 3 STOCK UTILITY PORTFOLIO

Last month I posted about utilities and the possibility of their benefiting from low interest rates for the next year or so.  Then it occurred to me that if you had only enough money to invest in a few stocks, you could do a lot worse than investing in a few good utility companies.

For instance, if you're goal were to receive monthly dividend payments, by purchasing shares in 3 different utilities paying dividends in different quarters, you could create just such a portfolio. 

As an example:

1.  MDU Resources Group (MDU) 3.1% dividend yield, pays dividends in January, April, July and October.

2.  NSTAR (NST)  3.7% dividend yield, pays dividends in February, May, August and November.

3.  Wisconsin Energy (WEC)  3.3% dividend yield, pays dividends in March, June, September and December.

All the above stocks have 5 year estimated dividend growth rates of 5 to 7%, meaning that dividend payouts should increase nicely over the next few years.  This is just an example, you'd want to do your own research and choose your own stocks, but the idea would work with any three stocks paying in different quarters.

COULD UTILITIES BE THE BIG WINNERS FOR 2012?

The Federal Reserve is pledging to keep short-term rates near zero until at least mid-2013, which is good news for companies who rely heavily on borrowed funds, including utilities.  In economic downturns most people still try to maintain lights and heat/air conditioning to their homes and businesses.  So while other companies may see a drastic reduction in sales, this is not often the case for utility providers. 

With some measure of guaranteed cost reductions from lower interest rates and reduced fuel costs, utilities should benefit over the next few years.  Investors should benefit as well, since utility companies are required by law to pass along a certain percentage of profits to shareholders in the form of dividend payments. 

While no one can predict where the market is headed, I think a good case could be made for utilities coming out as the big winners of the current economic turmoil.