Friday, October 25, 2019

Contact Energy: Buy for Yield





Last time we talked about this one it was selling at about $7.50   Little did I know about it when I wrote about it in June that yesterday it was trading at $7.68.

It has traded at a high of $9.05c and was savaged recently when Rio Tinto decided it was going too do its semi annual raid of the taxpayer dollar by sticking its hand out - BUT quite rightly Labour said NO.

That is the ONLY thing this writer sees fit that Labour have done.

It is paying a good dividend of 5.7% which is forecast to stand still next year. Pretty good return when compared with a 2.5% gain in the bank.

I know I said sell before but I have changed my mind.

With CEN only supplying 10% of the power to Tiwai Point (the smelter) that lot should be gobbled up pretty quickly should the padlocks need to come out for Rio Tinto. It means Contact Energy will not have to spend as big for many many years on new power sources.

But there will a few casualties if Rio decide to go - those with high debt may need to start looking around for cheaper rates.

You would do well to have a few thousand of these to pay the power bill every year.




c Share Investor 2019



10 comments:

  1. Interesting that Morningstar recommends "reduce" and valuation $6.60, although the same crowd were up to recently advising to buy Sky TV

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    Replies
    1. Yes. SkyTV and a whole lot of other stuff. I remember when they wouldn't rate RBD. Look how that turned out.

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  2. I have used Morningstar as a strategy for 10 years. Not always reliable...but better than the excited young kid next door who has voices opinions as sage advice . . .

    I came to add you'all be good to get an EV too...

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    Replies
    1. I wouldn't rate moaningstar at all. You will be better reading the tea leaves.

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    2. On second reading are you sure your not someone in my deep dark past. Especially with that quip about the Electric broom broom?

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    3. Oh...long term follower. Nothing nefarious. Used some of your advice when I was starting trading [got some burnt there] and then decided investing. I use your portfolio as one of my benchmarks for mine.

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  3. Ok..Sorry. You must be doing better than me. You know you aren't really tested until the Portfolio goes in the opposite direction. It's hasn't done that yet for 7 years - on my particular portfolio. Wish I knew who you were. We could have a beer. Anyway. Back to the Allblacks.

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  4. People are pretty pessimistic about the outcome for power companies if Rio shuts the smelter but, as you point out, there's an acute shortage of opportunities to earn a decent yield in NZ at the moment which I suspect is one of the reasons why the limited selection of good quality companies in NZ trade at such lofty valuations.

    Very frustrating for someone trying to build up a NZ portfolio at the moment.

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    Replies
    1. Well, even now at 5.7% it's not a bad entry point IF you can get it lower. And even then you can't go past the div.

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