Stocks of public companies with South Jersey ties — they include utilities, banks and casinos — have not been immune to market fluctuations, but are they worth investing in?
Any casual follower of the stock market knows investing can be a rocky ride. In two years, the Dow Jones Industrial Average has swung from below 10,000 points to more than 13,000.
Stock in Spirit Airlines, the prime carrier out of Atlantic City International Airport, purchased in May 2011 for $12 a share would have doubled in a year if sold at its peak this past May.
Buying at that peak and selling just one month later, however, would have yielded a 21 percent drop.
Caesars Entertainment Group sold a small percentage of its company in a February initial public offering. At one point, the stock almost doubled the first day. In August, it was trading lower than where it started.
Investing in the stock market requires gauging one’s risk tolerance, said Mark Reimet, a financial planner with Ocean City Financial Group in Ocean City.
“A person investing in the stock market has to be long-term oriented. They need the ability to weather the storm, and if there is financial loss it doesn’t put them in a situation where they’re on the verge of creating a poor financial future,” Reimet said. “And whenever you own one stock, as opposed to an assortment in a mutual fund, you have to be prepared for loss, maybe even total loss, so the risk is that much higher.”
Publicly traded companies based locally or with ties to the region mostly fall into three broad categories: utilities, banks and casino companies.
Area utilities (and their trading symbols) include South Jersey Industries (SJI), Atlantic City Electric parent Pepco Holdings Inc. (POM), and New Jersey American Water parent American Water Works Co. (AWK). All pay dividends.
Natural gas utility South Jersey Gas makes up the bulk of Folsom-based South Jersey Industries, an energy services holding company.
The company in July announced a regular dividend of 40.25 cents per share for the third quarter of 2012, payable in October.
“Our policy at South Jersey Industries is we want to grow our dividend by at least 6 to 7 percent a year, and our target dividend payout ratio is 50 to 60 percent of our economic earnings,” said Stephen Clark, who handles investor relations for South Jersey Industries. “The payout ratio is important because it’s your earnings that provide you with the cash available to pay your dividends.”
Clark said 40 percent of the company’s shareholder base is individual investors, with the remainder mainly mutual funds, insurance companies and hedge funds.
“We do get a lot of local people who invest in our stock, primarily because we’re smaller and we’re kind of a well-known name locally,” Clark said. “Clearly we have a big retiree attraction in our stock because of our performance in the past 15 years. We probably have a fairly high concentration of investors in Florida.”
When it comes to investing, diversity is key, Clark said. So is researching.
“People should also consider that the more they know about what they’re investing in, the better off you are,” he said.
Fred Boyle, chief financial officer for Pepco Holdings, said institutional investors-including pension plans, mutual funds and insurance funds-make up about 58 percent of shareholders. The remainder is individual level investors, or retail investors.
"Given the volatility that's occurred within the stock market and the very low interest rate environment, that has had an upward impact on utility stocks and dividend-paying stocks," Boyle said.
U.S. natural gas and electric utilities paid about $20.8 billion in dividends in 2011, according to Ernst & Young, in a May report prepared for the Edison Electric Institute, an association of investor-owned utility companies.
The report estimated nearly four out of five stockholders who directly own utility stocks were at least 50 years old.
One issue for investors to consider is potential changes to federal tax law on how qualified dividends are taxed.
In many cases now, dividends are now taxed at 15 percent. Without federal renewal by the end of the year, dividends would be taxed at typical incomes, which depending on a tax bracket could be as high as almost 40 percent, Boyle said.
"It's certainly something for our shareholders to pay attention to,” Boyle said.
Publicly traded banks in the region include Ocean Shore Holding Co. (OSHC) of Ocean City, Cape Bancorp Inc. (CBNJ) of Cape May Court House, and Sun Bancorp Inc. (SNBC) based in Vineland. All pay dividends.
Ocean Shore Holding Co. is the holding company for Ocean City Home Bank.
Ocean City Home Bank President Steve Brady said the company’s shareholders include a mix of inside ownership, institutional owners and individual investors.
“We’re a pretty thinly traded stock. There’s a lot of liquidity in our stock so generally it’s more about what’s happening in the banking community,” Brady said. “Most of the community banks are pretty simple. We don’t have that type of construction that Bank of America has. We take in deposits and make loans in the community.”
There are niches of investors who buy stocks in community banks such as Ocean City Home Bank, he said.
Brady said paying a dividend helps shareholders seeking consistency.
“It’s good, especially for the local people who own our stock, to reward them for being shareholders,” he said.
In Atlantic City, Borgata Casino Hotel & Spa is owned by Boyd Gaming Corp. (BYD) and MGM Resorts International (MGM).
Caesars Entertainment Corp. (CZR) owns four Atlantic City casinos: Caesars, Bally’s, Showboat and Harrah’s Resort.
Caesars, which is predominantly privately owned, sold 1.4 percent of its shares at an initial public offering in February, when its share prices quickly rocketed from about $9 to more than $17 the first day, The Wall Street Journal reported.
The stock has since declined and has bounced between $8 and $9 a share in August.
Casino stocks in general were much better before the recession, said analyst Frank Fantini, publisher of Fantini’s Gaming Report and CEO of Fantini Research.
“The industry was a growth industry for a very long time and a lot of the casino stocks grew dramatically. And then the recession pretty much threw all of them for a loop,” he said.
Atlantic City is just a piece of these companies’ finances.
“These same public companies have operations elsewhere. MGM has a presence in Macau and also a very big presence in Las Vegas, as does Caesars. And even though the Las Vegas recovery is slowing down, there’s reason for optimism if things work out,” he said.
“Right now I don’t think any of these companies are at their highs or lows. I think there’s room for them to go either way. I think there’s a lot of concerned pessimism priced into the stocks, so in that case I think there’s some downside protection,” he said.
Miramar, Fla.-based Spirit Airlines (SAVE) became a public company in May 2011, when its initial public offering priced shares at nearly $12.
By May 2012, the share price had nearly doubled. In late August it reached almost $20, but then dipped $16.58 by Sept. 14.
In the first six months of 2012, Spirit Airlines had total operating revenues of $647.8 million.
The airline, which flies out of Atlantic City International Airport in Egg Harbor Township, is known for low-price flights and for add-on fees for baggage and advance seat selection.
Non-ticket revenue made up nearly 40 percent — or $255.9 million — of the company’s revenues during the first half of this year, according to unaudited quarterly figures filed with the SEC in July.
Passenger revenues dropped about 4 percent — or nearly $58 million — from the first half of 2011 to the first half of 2012, Spirit reported. However, non-ticket revenue grew by more than $81 million, or 46 percent.
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