Regardless of how much you make, there are a limited number of hours in every day in which to make it. Investing discretionary income allows us to in essence expand wealth accumulation potential by allowing our money to grow alongside our fixed incomes.
First-time investors face a daunting array of advice on where to put their money.  Some of this advice fails to pinpoint the most basic concept of all forms of investing – the risk/reward trade-off.  Fixed income investments generally offer minimal risk.  In Australia bank deposits are insured up to $250,000, ensuring investors are safe from bank failure.  Bonds generally offer better yields but the time frame opens investors to the risk of rising interest rates, inflation, and the risk of the bond issuer defaulting. The risk/reward trade-off dictates that the relative safety of fixed income investments will yield smaller returns.  Investments with higher risk are likely to produce higher returns.
For some investors the risks associated with stock market investing are simply more than they can bear. The sad tales of the demise of seemingly promising investments in companies like Dick Smith blinds many to the fact not all stocks are created equally risky.
Standard & Poor classifies stocks into ten broad business sectors, two of which are considered non-cyclical. Cyclical stocks provide products and services where demand can drop in tough economic times.  Non-cyclical stocks provide products and services consumers and companies simply cannot do without, regardless of how dire the situation.  Consumer Staples stocks are considered to be non-cyclical but the sector includes companies that can suffer in the face of changing consumer buying habits to confront economic hardship. The most “bullet-proof” non-cyclical sector is Utilities.
Consumers and companies cannot survive without electricity, gas, and water.  Over time Utilities Stocks may not provide the stunning returns of Health Care standouts like Ramsey Healthcare (RHC) and CSL Limited (CSL) but they produce higher than average returns with arguably less risk.
The most successful ASX Utility Stock since the turn of the century is APA Group (APA), debuting in early 2000.  CSL debuted in 1994.  The following chart looks at the performance of both since their public listing compared to the ASX 200 and the US DJIA (Dow Jones Industrial Average).

Both stocks outperformed the US and Australian market indices and APA’s trend line shows less volatility. There are four other major Utility Stocks on the ASX with all showing solid performance for their shareholders over ten years.  The following table looks at that performance.

AGL Energy (AGL) is our largest utility stock and along with AusNet Services (AST) comes with a fully franked dividend.  AGL has the lowest current yield and is the only stock in the table that has not rewarded its shareholders with double digit total returns over ten years.  This should serve as a reminder that not all stocks in a sector exhibit the characteristics of the sector.  Right now the Health Care Sector is on fire, but there are stocks in that sector that are ice cold.  Similarly, some Utilities Stocks exhibit less of the defensive nature of the sector than others.  Here is how the AGL stock price has performed since 2000, again compared to the ASX 200 and the DJIA.

Note that in contrast to the price performance of APA Group, the AGL stock price took a hit in the GFC.  However, on future growth measures, AGL stands out.  The following table looks at earnings and dividend growth for the five stocks, as well as current share price performance.

AGL both generates and sells electricity and gas to consumers and companies, primarily in Eastern Australia, with a reported 84% of the company’s consumers using AGL for both electricity and gas.  Currently the electricity generation operation relies on coal-fired power stations but AGL management has set a goal of eliminating generating stations powered by fossil fuels by 2050.
Of the main ASX utility stocks, AGL arguably leads the way in turning to renewable energy as power sources. The company has hydro-electric power generating plants in Victoria and New South Wales and wind farms in Victoria and South Australia. AGL’s New Energy division is now offering Solar Power Purchase Agreements, where consumers and companies pay no costs for installation in lieu of monthly fees over the life of the purchase contract.  
Renewable energy sources, primarily wind and solar, are seen as a potential threat to the profitability of traditional utility companies in developed countries.  Solar power with improvements in battery storage capability means consumers and companies will rely less on electricity generated by the utilities.  AGL appears to be ready to deal with the future rather than fight to maintain the past.  The recent blackout in South Australia has seen an uptick in the heated debate over how renewable energy sources can be integrated into the existing electrical grid framework.  Many are blaming the blackout on South Australia’s reliance on wind generated power.
This was AGL’s official response to the crisis:
‘Australia’s energy system needs to transition. The key question for policymakers is how to enable that transition in the most orderly and cost-effective fashion.  AGL advocates a better integration of climate and energy policy architecture.
Although APA Group (APA) is the country’s largest provider of natural gas through its extensive pipeline network, the company is also casting an eye on the future with its wind farm operations.  The company has an operational wind farm in Western Australia – Emu Downs – with another site under development as well as an operational farm in South Australia – North Brown Hill.  AGL is expected to be in the hunt to acquire the Stockyard Hill wind generation site from Origin Energy.  In March of this year APA bought out its 50% partner – AGL Energy – and became the sole owner/operator of a gas-powered electricity generation station in Queensland.
DUET Group (DUE) is a diversified energy provider, offering both electricity and gas.  In stark contrast to APA and AGL, DUET was reportedly dumped by the Australian Ethical Investments Fund (AEF) in April due to its excessive exposure to fossil fuels.  
In June of this year DUET began to move into wind generation with the acquisition of the Cullerin Range Wind Farm from Origin Energy.  The company is reportedly on the lookout for more wind farms, either existing operations or sites for development.  The windfarm operations fall under DUET’s Energy Developments Limited subsidiary, which has operations in Europe and the United States in addition to its Australian assets.
AusNet Services (AST) is a diversified provider of gas and electricity operating in Victoria.  The company’s operations go from “end to end” beginning with generation and proceeding through transmission, distribution, and metering.  The Victoria operations consist of an electricity transmission network and gas and electricity distribution networks. 
The company has a unique “Community Grid” project under development in a suburb of Melbourne.  AusNet is installing solar panels on 14 homes which when coupled with battery storage of excess electricity produced on sunny days for later use will enable the homes to go off the existing grid.
The AusNet experiment recognizes a trend some industry experts say is inevitable. In the not too distant future as much as half of electricity demand will be met by “distributed energy” which is power generated at the site that can be shared in smaller local network grids.
Of all the major utilities Sparks Infrastructure (SKI) is arguably the most at risk from the potential shift of electricity generation and transmission from central power plants to individual homes, businesses, and community networks. 
Sparks is an investment company specialising in electricity distribution networks.  The company is a 49% owner in three such networks – SAPN (South Australia Power Network); CitiPower in Melbourne, and Powercor in Victoria.
In late November of 2015 the NSW government put the state’s privately held TransGrid electricity network up for lease (99 years) and Sparks grabbed a 15% stake. At that time some analysts expressed the opinion the Sparks and the other companies taking stakes had overpaid for TransGrid. However, in June of this year the company successfully executed a private bond placement with US investors to repay the bridge loans from the TransGrid acquisition.  
Sparks is betting its future on the TransGrid, touting the high-voltage electricity network as the “missing link” for the power grid.  In essence, Sparks sees the potential of the centralized distribution network of TransGrid as its entry into the changing dynamics of energy generation and distribution.
In November of 2015 TransGrid joined the Clean Energy Council (CEC) noting that over the prior two years 70% of the new connections to the TransGrid network came from renewable energy sources.  The CEC named the TransGrid iDemand project – using solar panels, batteries, and energy efficient lighting to reduce electricity demand during peak periods – as a finalist in its Innovation Award for 2015.
In times long past, the notion of seeking safety in utility stocks was marred by one concern – government regulations.  Today investors can add to that how utilities respond to the disruptive effects of renewable energy sources.

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