recently, our local gas company (or was it the electric company?) sent a letter to my mom about investing in their stock. my first reaction was to advise her to do it since they are extorting untold jillions of dollars from us (just to keep us from freezing to death in the winter). my next thoughts were along the line of “why do they want to sell us stock now? if they are a money maker, why don’t they keep the profits to themselves like every one else does? why the sudden largesse? will any dividends or profits be swallowed up by ‘overhead’?”
as a traditional investment, have gas companies been a moneymaker for the small investor, or would my mom’s money be just the fodder for the fat cats?
Utilities have traditionally been considered low growth/high dividend investments but that isn’t the case anymore. Deregulation, scandal, and the controversy around nukes litigation makes it a riskier proposition as a sector. Individually, many companies that have their little regional monopoly and are still regulated act just like they used to - they are just cash cows. Utilities used to yield around 100 basis points below 10 year treasuries but because of the reasons cited above are now around 100 basis points over treasuries. Why does your local company need money? - depends, but they could be upgrading their infrastructure.
Because utilities were monopolies, they were regulated by their state public utility commissions. The PUC would hear the utilities rate requests each year and then grant them the rate of return that they were guaranteed in order to meet their needs.
This meant that utilities used to be the safest possible stock to own because they guaranteed dividends at a known rate of return each year. They were widows and orphans stock.
This can still be true of some regulated utilities, but deregulation, mergers, divestments and changes in PUC policies have made utilities far less stable and their stocks are not guaranteed to give off regular dividends.
You need to look into the history of your particular utility to see how its stock has been doing, whether it is paying dividends and if so how much and how frequently, and whether there are any reasons why it might not be a stable investment for the future.