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Avista Corp. pays a very consistent dividend with a current yield of 3.96%. It also has very stable customer base that provides protection in any bear market. AVA is trading at a reasonable price with a forward p/e of 16. The company grew revenue by 8% YoY for the most recent quarter. While there’s nothing sexy about owning a small utility company operating in the northwest region with a market cap of only $2 billion, Avista Corp. (NYSE: AVA ) is a great dividend paying stock for the defensive investor looking to preserve capital during a bear market while collecting a 4% yield. AVA has consistently raised its dividend over time, even during the depths of the financial crisis. One of the great things about companies offering services that everyone needs is that they usually outperform the market during recessions. By protecting capital while most of the market is losing it, you have a larger base from which to grow when the market eventually turns positive. This is exactly what Warren Buffett’s portfolio did during the great bull market of the 1990s that eventually went bust. Everyone thought Buffett was crazy for staying out of tech stocks during the now famous record breaking run the sector was having for those few years. While everyone was saying “this time is different,” Buffett knew that a market with an average p/e over 50 could not sustain that level of growth and that it would not end well. Of course he was correct, and many companies not only lost most of their value when the bubble popped, but a great number of high flying growth companies simply went out of business. Buffett’s portfolio on the other hand just kept chugging along, building wealth. How did AVA do doing this period? In October, 1999 AVA was trading at $18 a share. After the bubble burst and many were losing their shirts and swearing off stocks forever, AVA was trading even higher than its pre-crash price of $18 a share. In October 2000 after the market crashed, AVA was trading at $22 a share. This example clearly illustrates the power of investing in stable dividend paying stocks during bear markets, but in terms of psychology, which of course is a large part of investing, I would argue that it also makes the case for owning this type of stock during all kinds of market conditions. AVA has solid fundamentals. At a p/e of only 16 and YoY quarterly revenue growth of 8%, the company can not be said to be overpriced. Dollar cost averaging into this company would be a logical strategy because with such a stable p/e ratio, you can buy it at almost any time and know that your capital will be safe and growing over the long term. AVA is currently trading at only 1.4 times book value. This means that the company’s shares are only trading at a slight premium to the value of the company’s tangible assets. So in the event of a severe market crash, the company could literally sell off its assets and pay shareholders back. This is highly unlikely to happen, of course, since a utility company as strong as AVA will most likely perform very well in a severe bear market, which history has shown to be the case for this type of stock. Again, notice how well AVA performed during the huge crash of 2000 when the internet bubble burst. AVA was no worse for wear after the crash, and in fact, was trading at a higher price while most of the rest of the market took years to recover. One of the greatest factors that AVA has going for it is that, like many utility companies, it basically has a monopoly in its region. This translates to a huge moat, as the barriers to entry into this market are basically insurmountable. It would cost billions of dollars to attempt to supplant this market leader in the region where it operates (the northwest), and for that reason it simply isn’t worth the attempt for another utility provider. So AVA has stable earnings, a very strong moat, a high dividend, and is trading close to book value. These factors include most of what any value investor is usually looking for in a conservative investment. This strategy has the benefit of letting us sleep well at night, knowing that no matter what happens, our capital will be safe and we will at least be earning some income from the dividend while we wait for better market conditions to prevail. We accept the fact that we will not build as much wealth as others during bull markets, knowing that we are still accomplishing our long-term investing goals while not losing years of our lives being stressed out about when the next recession will hit. It’s a simpler strategy too. When you invest in stable dividend paying companies that offer products and services that investors need, you don’t have to worry about timing the market or looking at a million charts and using complicated technical analysis to try to predict the future. You just invest money when you have it in your defensive portfolio and let the power of compounding do its work. In the meantime, you can enjoy your life and let others’ hair turn gray trying to time the market (and usually failing). In conclusion, AVA is a great addition to the defensive investor’s portfolio due to its history of stable dividend growth and solid earnings. There may be companies in other industries that pay a higher yield than 4%, but you won’t find an industry or company that is more defensive than a utility company that is the market leader in its region. AVA will be raising its dividend and slowly growing for the next 50 years. If you have a long time horizon, you could do a lot worse. Scalper1 News
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