| Lock
in Yields of 8.5% with Shares of this Foreign Utility |
Published: September 18, 2006
Italian energy giant Enel (NYSE:
EN) is one of the largest publicly traded electric utilities in Europe. Enel
was privatized in 1999 when Italy deregulated the electricity market, but
the Italian government remains the controlling shareholder with a 32% stake.
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Enel generates nearly half of Italy's electricity and holds an interest in
the nation's electrical grid -- a vast network of transmission lines that
carries electricity across Italy.
The stock yields 8.5% based
on dividend payouts of $3.83, distributed biannually over the past 12
months. The company has a dividend policy of paying out 70% of net income,
plus most of the capital gains from asset sales. As such, payouts tend to
vary depending on the firm's restructuring activities. On the whole, Enel's dividend has climbed an average
of +15% per year over the past five
years.
The dividend is powered by Italy's
insatiable appetite for electricity -- consumption is growing at double the
rate of the overall economy. As a result, Italian energy prices are the
highest in Western Europe.
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Editor's
Note: Carla Pasternak's model portfolios focus exclusively
on investment opportunities with ultra-high yields. In fact, in each
of her monthly High-Yield Investing newsletters she
provides readers with an entire portfolio of stocks, funds and
preferreds that are delivering annual dividend yields of +10% or
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must deliver cash payments of at least 10% per year. Visit
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Government policy prohibits any company from controlling more than 50% of
Italy's generating capacity, thereby limiting the company's domestic growth.
However, Enel continues to invest in other European markets, including a
recent joint venture with French nuclear power operator EDF. The partnership
provides Enel with a new low-cost power source.
Action to Take: With a current P/E of just nine times trailing
12-month earnings, the shares are reasonably priced. For medium-risk
investors who can tolerate some volatility in the annual dividend payouts,
Enel should provide a solid income stream over the long term.
When an overseas company like Enel distributes dividends, its payments are
subject to a foreign withholding tax of about 15%. You can receive a credit
for the amount by filing IRS Form 1116, if the shares are held in a taxable
account. Foreign tax credits generally can't be recovered in an IRA account,
but you're also not taxed on the dividends.
Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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