Our first idea is a utility that is growing its renewable energy sources and has a current annual dividend yield of 3.94%, paid quarterly. And we are selling an insurance company with a great dividend but mediocre performance.
Buy: Pinnacle West Capital Corporation (PNW)
From The Prudent Speculator
Pinnacle West Capital is a utility that provides electric service to more than 1.2 million customers via its Arizona Public Service unit. PNW’s owned power plants include the Palo Verde nuclear facility, several coal-fired and gas/oil-fired plants, as well as more than ten solar farms.
Management has deferred earnings guidance for 2021 until it receives a decision on its most recent rate case, which is expected this quarter. But we continue to think PNW ought to benefit from Arizona’s population growth that remains above the U.S. average, and from opportunities to invest in the growth of renewable energy.
We also note that a couple of the world’s largest semiconductor companies (TSMC and Intel) have both announced plans to build several Arizona factories in the next few years. Pinnacle has earned an average return on equity of 10% over the past decade and sports a rich dividend yield.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, July 2, 2021
Sell: AXIS Capital Holdings Limited (AXS)
From The Prudent Speculator
Updated from WSBD issue 300, September 13, 2017
With every stock fighting for its position in our portfolios and other names knocking at the door, we chose to exit a couple of smaller-weighted holdings to free up cash to fund new purchases. We elected to part ways today with Axis Capital Holdings at prices no lower than $49.32. While dividend payouts were sizable over the years, Axis was a lackluster performer.
Reinsurer Axis has made strides in controlling costs and ushering in a more balanced operation, but our ownership had been characterized by an elevated occurrence of natural catastrophes. On the one hand, this is a positive for the underwater pricing cycle, but on the other hand, book value per share decreased by 10% over the past five years. In addition, a sustained period of paltry interest rates across the globe matches poorly with long-duration (and highly uncertain) liabilities typical for a reinsurance operation, so we felt the risk of a continued hold did not justify the reward.
John Buckingham, The Prudent Speculator, theprudentspeculator.com, 877-817-4394, July 15, 2021