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A Favorable Wind Blowing for This Utility

Charles Fishman, CFA

Charles Fishman: It's been ugly for utilities this year. They are down about 10%, year to date. It's really about the worst stretch we've seen since the financial crisis. Valuations are now at a point that really are looking very attractive. So many times when something like this happens, you have good companies, great managements that get caught up in the downdraft, and that's the case with the electric-utility group.

One name that we think has become very attractive is ITC Holdings (ITC). This is a company that's 100% regulated. It owns high-voltage electric transmission. If you've been driving or flying through the Midwest, you've seen wind turbines in the middle of nowhere and wondered, "How does that electric get to where people can use it?" [The answer is] high-voltage electric transmission, and chances are it's transmission that is owned by ITC. We see that expansion of wind continuing over the next five years.

Now, the dividend for ITC only provides about a 2% yield, but that's because they've had to spend so much money expanding their system. We do see the dividend increasing in the low-double-digit range over the next five years, and that will result in a total return that we believe will be very attractive for investors looking for a low-risk regulated utility.