- Lots of money continues to sit on the sidelines and looking for an attractive home.
- One portfolio manager is making the case for dividends to be the best alternative investment tool.
- Hennessy Gas Utility Fund offers exposure to above average dividend growth.
Ultra-Low Rate Environment
Despite stocks trading at or near historic all-time highs, there is still a lot of cash sitting on the sidelines waiting to find a home in some sort of asset class. Given the ultra low rate environment, many investors are looking for an attractive yield.
Kelley said his particular area of expertise is natural gas utilities and most companies in the sector not only pay a dividend but offer a dividend growth rate that is above their historical average. The dividend growth rate of companies under his watch in the Hennessy Gas Utility Fund averaged 6% over the past three years and the current yield is above 3%.
The fund invests in all sorts of companies whose main objective is to deliver natural gas to the end-user. Some of the stocks do include pipelines that move natural gas. By contrast, the fund doesn’t see the wisdom in investing in the commodity itself.
“If you are worried about the market, if you are worried about valuations, if you are worried about issues around the world whether it is trade policy, coronavirus, whatever it is that’s worrying you, it’s helpful I think to have part of your portfolio in companies that just continue to plot along,” he said. “They are rewarded for their dividends and growth in dividends and they have long-term capital expenditure plans.”
But Why This Type Of Fund?
Few predictions are calling for natural gas prices to move higher over the longer-term which begs the question: why would investors want exposure to alternative investment ideas correlated to natural gas distribution.
According to Kelley, natural gas is affordable, abundant, and accessible. This perfect trifecta bodes well for the companies responsible for distribution. In fact, the quantity of natural gas moving through the system directly translates to more money made by the industry.
Low priced natural gas also improves its competitive positioning not only in the U.S. but throughout the world.
The fund is also attractive as many of the individual stocks are showing above-average growth in earnings per share and revenue. While utilities are by nature companies with slower growth rates compared to other sectors, right now the industry is experiencing a surge of major capital expenditures through modernization and replacements.
The best: this trend should continue over a five-year period and isn’t reflected in share prices today, he said.