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Dividend Interrupted
Written February 4, 2024


When my father retired in 1973, we held a party in Mount Victory, Ohio.

Now that he had sold his business, he found himself with a sizable amount of cash.  Where could he invest it?

One attractive option was certificates of deposit.  Republican Richard Nixon was President, it was a time of high inflation, and my father found one short-term CD that paid him 17 percent interest!  (That didn't last; I have one now paying 2¼ percent, but most bank rates are much lower.)

Another option was the stock market.  But that would be too much risk, and too much work.  Because he was supposed to be retired, he wanted long-term “buy and hold” investments.  He didn't want to purchase shares on a Tuesday, gambling that the price would go up on Wednesday so he could sell them at a profit — especially when there was a real chance that the price could go down.

The kinfolk said “Vern, move away from there!”

Said “Utilities are the place you oughta be.”

Hank Tucker explains: “Investors in utility companies, which provide electricity and water to customers, generally sacrifice the upside potential of more risky sectors in favor of dependable returns and high dividend yields.  The average yield for the sector now sits at about 4%, compared with the S&P 500's overall dividend yield of 1.6%.”

My father liked to point out the reliability of certain corporate dividends, even through times of war and depression.  For example, one company has paid a portion of its corporate earnings to its stockholders every year since 1891, and the dollar amount of those dividends has been increasing every year since 1957.

So he bought utility stocks for himself.  He also bought a few others that he gave to me while he was still living, and when he passed away I inherited the rest.

At the beginning of 2023, my shares in Hawaiian Electric Industries, Inc., were yielding 3.3%, although they amounted to less than a fiftieth of my income.

Everything was fine until August 8 when a brush fire broke out on the western part of the Hawaiian island of Maui.  Strong winds from Hurricane Dora downed at least 30 power poles, knocking out electricity for many customers.

Hawaiian Electric re-energized a transmission line at 6 a.m. because the power outage might affect health and safety equipment like air conditioners or traffic signals.  But the same line tripped offline again at 6:39, around the time that a larger fire broke out.  A much larger fire.  About a hundred people died, a third of them trapped on dead-end Kuhua Street, as the town of Lahaina was virtually destroyed.

“The fact that the power was out in Lahaina and Hawaiian Electric turned it back on could play a significant role in the company's future,” wrote Nick Grube, “especially as it faces a barrage of lawsuits for its role in sparking the blaze,”

Island residents did sue their electric company.  And starting August 11, the price of HE's common stock dropped 70% in a two-week period, from $32.40 to $9.66 per share.  Then investors sued the company, claiming that inadequate wildfire safety procedures had caused the value of their shares to fall.

Soon, the utility made an announcement.  Anticipating losing dozens of lawsuits, and also needing to set aside cash for rebuilding and restoring power, it was suspending its quarterly dividend!

I didn't receive my usual check in December, and I shouldn't expect one in March either.

But according to a February 13 report from civilbeat.org, “State officials have responded with a number of steps to help one of the state's oldest and most prestigious corporations.  Lawmakers have proposed measures that will allow the utility to raise additional money by issuing bonds.  Gov. Josh Green has helped assemble a $175 million settlement fund to pay up to $1.5 million each to people injured or families of people killed to settle lawsuits.  A second fund, not yet established, would pay property owners and businesses harmed by the fires.”

The shares that I hold are a long-term investment, and Hawaiian Electric's finances will rebound eventually.

One hopes.

After all, they've managed to pay at least some dividends in every year since 1970.



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