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Steven Sears does the Striking Price column weekly in Barron’s.  The column is focused on options investing. In his June 3, 2024 article (Utilities Are Hot. Jump in Without Getting Burned) Steve went on about the increase in electric consumption occasioned by the huge demand increases required to service AI and the data centers focused on supporting AI users.  Steve notes that the electric utility ETF (XLU) is up 14% this year compared with about 10.6% for the S&P 500.  That just doesn’t happen.  But electric utilities are a regulated industry.  Once all those state regulatory commissions get wind of those outsized returns how long before they compel rate reduction?


We commented on Steve’s observations that there might be an even better way to capitalize on the electricity requirements driven by those AI-centric data centers.  That’s by owning CAT.  You see, Caterpillar is the primary supplier of those huge generators that provide instant back up energy to those data centers.  Apparently, AI uses require uninterrupted electric supply and that’s what CAT is good at.  CAT has been increasing its dividends for 30 years and pays 1.54% currently.  The dividend has increased 7.9%/year for the last decade and the stock is up 40% over the last year and is still trading at a PE of about 15.  A “picks and shovels” unregulated way to participate in AI?  We own a lot of CAT and even during our current pause DRIP all our dividends.  On down days if you have cash available you might want to consider selling a cash-backed out of the money put on CAT.

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As our readers know, we focus on acquiring those great American businesses that are Dividend Champions. DCs are the currently 145 businesses that have paid increasing dividends for at least 25 years. 


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