 Good day, fellow investors. My name is Senkali and today I'll explain how boring old utilities can make you rich. Very rich over the long term with low volatility, so low risk. We'll discuss how to invest in utilities, what are the pros, what are the cons, where to find the best utilities around the world, what we can expect from US utilities and what we can expect from other utilities. And how do defensive utilities fit a normal portfolio? So why investing in utilities? First, whatever happens in the economy in your life, this evening you're going to turn the light on or if it's hot like it is now in the summer here in the northern hemisphere, you're going to turn your airco on. So whatever happens electricity will be consumed. So that's one. Secondly, there is always something called inflation that investors have forgotten about, but it's always present and takes off a little bit of our returns every year. Electricity, utility and other utilities are allowed to increase their prices in line with inflation, so they give protection against inflation, which is very, very important. So that's two. Three, utilities can be growth companies, especially if they reinvest their earnings. For example, if there is a country with good economics, good demographics, a utility can be very, very good, safe, long-term investment. Four, there is less competition in the utility business. If you build one transmission line, there is no point that the competitor builds the second one next to it, because then nobody would make money. So the ones who are there, who have been a utility in a certain area for the past five decades, they are pretty set, safe businesses and there are very few things that will disrupt them. So that's the case for utilities. On the negative side, each utility is again very different. There are some utilities who would like to take lots of debt, they over expand, usually buying distressed assets, which are distressed for a reason, and then if they run into troubles of not being able to pay their debts, they go bankrupt. The latest example is energy future holdings that's now in bankruptcy court and Buffett made a bid of 9 billion to buy their taxes on core energy. So Buffett knows, okay, this is good, I'm investing there, I will get my 10% return if I invest in utilities and Berkshire Hathaway Energy is heavily investing in utilities. So it's interesting to see whether we should invest too. Now let's start with taking a look at US utilities, what they offer and what are the risks. As you can see, valuations are from 17 to 26, depending on the company, debt ratios are almost equal, dominion 80%, while a conservative Berkshire Hathaway Energy has only 42% of assets financed by debt. So all others are very, very leaning towards that. That's logical because of the current low interest rates and if interest rates increase, utilities will also increase their prices, so they're pretty hatched there. What you can see the lower than market valuations are due to low growth per year. Utilities can grow if they make an acquisition or invest in new infrastructure, so the growth is relatively low and especially low because they pay out a lot of their earnings into dividends. Payouts range from 50% to 100%. Berkshire Hathaway reinvests as they are buying on-core with the money they're reinvesting, thus they are growing. Different perspectives, you have to see which one is the best for you. Now on the risk side, we have seen dividend yields around 4%. Current federal funds rate is 1%. Ten-year treasury is 2.0. And dividend yields on utilities are 4%. If the federal funds rates increase to let's say 3%, the 10-year treasury yield will be 5% and the expected return from utilities will be 7%. Stock prices would go down. That's something inevitable. And that's the risk of utilities. However, until that happens, you have a nice dividend to enjoy. So just a quick example. Southern company stock price is 47.36, the dividend is 2.32. The current dividend yield is 4.89%. If interest rates increase, the expected yields will go, for example, to 7.5%. Given the stability of the company and their earnings, stock price would drop to $30.93 because then it has an expected yield of 7.5%. Thus, if interest rates increase, all these stocks have run a risk of a 35% decline. If higher interest rates hit their debt costs, then the decline can be even larger. So there is risk, especially now with low interest rates. I don't see much higher interest rates because that would trim the economy. So in the long term, there is risk. But if stock prices drop, your dividends will be higher and you can reinvest more. Thus, your long-term returns will be higher because you bought more stocks on the chip, also a reward. So there is plenty of weighing around utilities. Another significant thing is that utilities constantly increase their dividend. Even if they don't grow that fast, they rationalize increased prices little by little, lower cost. And as you can see, Southern Company here has increased its dividend for the past 17 years. Slowly, steadily, thus you can expect higher dividends in the future. Now, these are US utilities. For those who are a little bit more adventurous, you can look for utilities around the world. Much lower price earnings ratio, much higher growth potential from emerging market economies, for example, does a very interesting, very attractive investment opportunities. For example, Coppel, Energy Company of Parana, has a price earnings ratio of just 5.7. It's a Brazilian utility. The same in Brazil, whatever happens, people are going to use electricity. Price to book 0.4, dividend yield 3.5. Now, when investing in foreign utilities, you have to invest in countries that are going to grow, are going to have positive demographics, because you want to be exposed to a positive, strengthening currency trend. And in the meantime, get a nice dividend. So Brazil is one idea. Good dividend. When the situation stabilizes, when the real strengthens, your dividend will go from 3.5 with economic growth to probably even 7%. So that's very interesting, very tempting scenarios. If you're not so keen on Brazil, let me show you what's going on in Australia. So the Aussie dollar has really weakened in relation to the US dollar in the last five years, due to the slumping commodities, and hasn't really appreciated much as commodities recovered. Thus, if the Aussie dollar recovers, you can expect an additional return from an investment in Australian utilities. I'll make a special video about Aussie dollar and how to invest in Australia. But let's see what do we have in Australia. We have, in this case, selected four big utilities. You can see that dividend yields are above 4% and above 5%. So while you wait, you can get 5%. If your Aussie dollar strengthens, and I think we are at the bottom now, as I said, make a special video about it, then your yields can be 7%, 8%, 9% if you are a European or US investor. If you're an Australian investor, then look for emerging markets. Don't invest in Europe and the US, because long-term trends are here and we can't avoid them. So emerging market currencies will probably be stronger in the very, very long term. Thus to conclude, utilities are stable, safe, income-yielding investments that you know will be there in the long term and we can take advantage of them. However, depending on your risks, your currency risks, if you want to look around the globe and then rebalance accordingly, invest more when something is cheap, you can make huge returns and utilities can really make you rich. So depending if you are such a bit more defensive, these are very, very interesting things to invest in. I especially like them because they give me a margin of safety, because I know people are going to use electricity whatever happens and when there is a crisis, like there was last year in Brazil, I was heavily invested in a Brazilian utility company. I'll make a video also about Brazilian utilities and Brazilian investments. So it's very interesting to see what's going on. I'll take a deeper look also at Australian utilities. Very interesting situation there. Thank you for watching, don't forget to subscribe, click like if you liked the content, leave your comments, share your ideas, let's create here a community of value profitable investors. Thank you and I'll see you in the next video.