Over the past two years, some of us long term HE longs, have had pitched battles on this board fending off others, who hold the view, that rising interest rate would have a negative affect upon dividend paying stocks, such as HE.
All manners of arguments, such as Utilities always under the pressure of waves of interest rate hikes, suffer. To explain this argument a little, when interest rates go up the cost of a HE stock vs. the dividend it pays does not seem as good an investment as say a CD or any other investment vehicle based upon interest rate increases. This is because most interest based investment is based upon a fixed interest rate and have a very small risk factor, as compared to a stock dividend investment which may have a floating dividend rate caused by the good or bad performance of any company paying that dividend plus you must add the inherent risk that comes with any stock purchase.
The simple answer to this is, that HE has as a rule rewarded their stock holders a higher rate of return, then interest rate vehicles have, even with the numerous quarter to half point rate increases, we have seen over the last 3 to 4 yrs. In fact, even with the many rate increases, home loans, can still be gotten for less the 5.75%, leaving mortgage buying investment as a very long term, low return investment, when compared to HE, which could be very long term but does not have to be, but at this moment, HE is paying somewhere in the neighborhood of 4.56% return, just on the dividend side, plus if you are a long term investor, the great returns on growth.
The next argument, is when interest rates rise, utilities that are based on borrowing funds to finance Capital projects are forced to pay those higher interest rates to do so, thus affecting the bottom line. Well, the answer to this one is a number of years ago the management of HE purchased American Savings Bank, the third largest financial banking company, in the State of Hawaii. This purchase, has allowed HE, to weather these interest rate hikes, due to the fact that ASB, has grown amazingly under the Stewardship of their parent company, HE. The Utility side, has had its struggles during this time period but the banking side, has flourished due to the fact that there is a symmetry between the utility side and the banking side, where one tends to balance the other during fluctuating interest rate cycles. In fact, the Banking side is doing so well, I would imagine it, ASB, overtaking the Utility, when it comes to the bottom line. In general, there is no relationship between incoming revenue from the Utility sides vs. the ASB side, since Utility revenues, dwarf the ASB revenues, but the cost of doing business for the Utility sides also dwarfs the ASB cost, so in the end the net profits now are very close to each other.
Now, for the reason for this post, I have linked a chart, showing the performance of HE over the last 5 yrs when compared to the performance of FMAGX, Fidelity Magellan One of the leading, Large Blend Funds, in America. As you can see the performance of HE has far surpassed FMAGX for the last 5 yrs even through these interest rate hikes.
Some say it is better to be humble in victory then to gloat in that same victory, but in this case, when most where trying to tear down HE, I defended this company with these same arguments, so I have history, on this board and to let out a little crow at this time, when it seems like a victory, for both HE and for the investors that stayed long, I will take it.
hei4me: I am not going to get as verbose as you did in your point of view, but I still insist that HE is held back because of rising interest rates. You say look at the last 5 years for a comparison with Fidelity Magellan One. 5 years ago interst rates started going down. 1 year ago (or a bit longer) interest rates started goin UP. Now go back and compare the 1 year and 2 years charts and tell me what you see. HE has been UNDERPERFORMING vs FMO for the past TWO years. Thats because interest rates were/are rising. I still contend that the best time to sell a utility (in general) is when rates turn up and the best time to buy a utility (in general) is when interest rates are heading lower. I do not know why this is so hard for you to understand. The chart you posted proves it. I am continuing to wait to buy HE when interest rates have peaked. IMO, that time is getting very close.
Why is it hard for me to understand, well why is it so hard for you to understand what being long in a stock means. For you to tell me to use a shorter time period would indecate that you are the one that doesn't understand how to set up a stock porfolio. You must base it on a long term good performers such as HE and then add to the mix layers of growth and dividend stock as you see fit.
A while back I mentioned Etrade as a growth stock that I also own it is performing great for what I consider a short term 2 years and still has a reasonable P/E of about 23.
You have muddied the water as far as trying to shorten the tracking time of my comparison chart to two years so you can try to make your point. I must admit though you where one of the individuals that I was speaking of and you still do not get it. I admitted HE in my post the utility side has been hurt since interest rate have been rising but until this day you will not admit that the Banking side of HE prospers during higher interest cycles and since almost half of the net comes from banking HE is no longer a Utility it is a hybrid and as long as you do not get that point I guess opportunities such as my last dividend checks from HE will pass you buy.
One last thing your statement "I still insist that HE is held back because of rising interest rates" is a lot less drastic as your claiming HE will be going down because of higher interest rates. Check out the 200 day moving average for those 5 yrs it may have leveled off some due to the rocket launch early last year but for all intents and purposes it is still on an up swing. you must remember HE is not a growth stock and P/E still factors strongly. It is the P/E that holds HE back when it becomes to high HE falls some.
I have been following but have not purchased a stock that investors do not care about P/E, AMD, Advanced Micro Devices, now here is a stock that is being treated just as stocks where before the crash of the roaring 90's. It has a P/E of 85 now but it was above 120"s just a few weeks ago, Investors pushing away at that stock only to mess up the stock market again. The old story of the Big Fish laying a trap for the little fish.