Utility Stocks’ Tumble Hits Investors Hard
When Arthur Slobod sank $75,000 of his nest egg into Edison International stock last year, he felt pretty good about it. After all, the stock had paid a nice dividend, and the retired engineer figured investing in utilities was about as safe as you could go.
But the 90-year-old Leisure World resident has seen two-thirds of his investment shrivel away. Edison’s once-steady dividends have been halted. And Slobod fears that he could lose it all if Edison declares bankruptcy.
“I would be a big loser if this thing goes belly up,” Slobod said this week while eating a spaghetti lunch at a seniors center in Laguna Woods. “Who would have questioned Edison?”
As California’s major utility companies struggle to survive this monumental energy crisis, many of the folks who stand to lose the most are elderly residents, particularly those on fixed incomes.
Seniors have historically invested heavily in utility stocks and bonds, drawn by their relatively generous yields and the long-held belief that they are the “sleep easy, steady Eddie” kinds of investments, as one analyst put it.
The majority of Edison’s 325 million shares outstanding are owned by individuals, many of them retirees, said Jo Goddard, vice president for investor relations at Edison.
Goddard and two assistants have fielded dozens of calls a day from some of these bewildered investors.
Some stick in their minds: the 80-year-old man whose Edison International dividend check represents 25% of his income, the widow of a 30-year Edison employee who promised her husband on his deathbed last year that she would never sell the company stock.
“The days of buying and forgetting about your utility investments are gone,” said Jon Kyle Cartwright, an analyst with Raymond James brokerage. “The potential bankruptcies we’re looking at with Edison and PG&E; are unlike any bankruptcies in the histories of utilities. This is uncharted territory.”
He said it was government regulation of utilities that made these stocks and bonds so attractive to investors who didn’t want to keep a hawk eye on their investments. But deregulation has changed all that.
“Now they see they are no longer the so-called widow and orphan stocks,” said Greg Weiss, editor of the Investment Quality Trends newsletter.
That has been a painful lesson for many investors. But it’s even harder for elderly investors, who often find it difficult to juggle their portfolios, and who tend to be “buy and hold” investors.
Beverly Bozung of Florida is punching at air on behalf of her father, John Bunker, whose 760 shares of Edison represents about one-third of his retirement nest egg.
“I tried reaching the governor [of California], but you can’t get through. I tried several days,” said Bozung, a former Nebraska farmer who now lives with her 87-year-old father in West Palm Beach, Fla. “I think I’ll call Dianne Feinstein. She might be easier to reach.”
Like others, Bozung blames the current crisis largely on the state for limiting the amount that Edison could charge.
“Having his investment reduced to almost nothing when he’s 87 is very disheartening,” Bozung said of her father. “He’s a person from the Depression era; he doesn’t have savvy about the market. He thinks things could get bad. That’s why he [was] keeping it. He thought it was a secure investment.”
Traditionally, utilities have been regarded as ‘defensive stocks’ for tough times because they tended to perform very well in turbulent periods. In fact, in 2000 when the technology sector was crushed and the Dow Jones industrial average declined by 6%, the Dow average of utility stocks was up about 45%.
But this past month, the stocks of Edison, Pacific Gas & Electric and San Diego Gas & Electric (Sempra Energy) have all fallen sharply, and they have dragged down the Dow utilities average, which is off about 15% in the first three weeks of this year.
Edison and PG&E;’s corporate bonds have been downgraded to the point that they have slid into junk bond territory. But both companies also issued tax-exempt municipal bonds through the California Pollution Control Financing Authority, and many of those bonds were insured when they were issued.
Though the bonds continue to pay interest, experts vary about the safety of these holdings. Zane Mann, publisher of the California Municipal Bond Advisor newsletter, has cautioned people “not to panic and sell” insured bonds.
“There has been selling because of the bad news, and I’m saying ‘Don’t do it,’ ” he said.
Weiss, who manages portfolios, still recommends that his retired clients put 30% of their investments in utilities.
Weiss has been telling his clients to dump any utility stocks if they have stopped dividend payments, even at depressed prices. Other experts hesitate to make such recommendations, considering all the uncertainty swirling around the California utilities.
“At this point, pure and simple, it’s speculation,” said Justin McCann, senior industrial analyst with Standard & Poor’s equity group. “If somehow they resolve this thing, I’m sure the stock prices and everything else will eventually recover. If they don’t resolve it, it’s going to go through the floor.”
Many seniors aren’t sure what to do.
In Laguna Woods, residents have been jolted by the loss of Edison’s dividends. Just last year, Edison paid a high-dividend yield of 5.4%.
“I will miss the check I was getting,” said a Leisure World resident who declined to give her name. She said she was receiving a $270 dividend check for her 1,000 shares of Edison.
At Edison, a large chunk of the stock--about 24 million shares--is held by current employees. Some, including Edison Chief Executive John Bryson, have invested their entire retirement savings accounts in the company. The plummeting stock price has forced some to postpone retirement plans.
“The shareholders are definitely sharing in the pain,” said vice president Goddard, who takes some of the 50 investor calls a day that come to the corporate headquarters in Rosemead. “All of the investors are sharing in the pain.”
That’s no comfort to Slobod.
When Slobod considers his shrinking investment, he feels “sheepish.” He said he bought the stock on the recommendation of his broker.
“I didn’t have enough information to make a decent decision. That’s the trouble with the average investor,” he said.
“You look back, I should have sold it right away,” he said. But now Slobod figures he’ll hold and wait.
“I talked to a couple of brokers and they said, ‘Hang in there,’ ” he said. “If it all goes broke, I lose $75,000. I decided to ride it out.”
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Times staff writer Nancy Cleeland contributed to this story.
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Downhill Riders
Shares of California’s three private utilities have taken a beating during the state’s energy crisis. Daily closing prices of the stocks and Standard & Poor’s index of 40 utilities over the last two months:
PG&E;: $10.19
Edison Internation: $8.94
Sempra: $18.94
S&P; Index: 299.16
Source: Bloomberg News
