the love affair between investors looking for strong dividend yields and utility company stocks
TRANSCRIPT
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Hi, My names Aaron and I‘m with Dividend Stocks Research, and today
were reviewing our recently published article…
The Love affair between investors looking for strong yields and utility
stocks has been a strong one.
Some might say it’s been passionate and profitable for years!
Why all the focus on utilities? Why does a boring industry get all the
attention?
The reason for this romance is stability. People pay the electric bill in goodtimes and bad. If you’re hurting
financially, or have recently lost your job, you tighten your belt… you stop eating out, and you cancel vacation
trips. Things have to get very desperate for you to shut off your
utilities!
As a result, utility stocks tend to weather the stormiest market
downturns.
There is another reason utility stocks are loved by the savvy investors…
It’s all about government regulators. You see, most utilities are regulated
in one way or another. Now, this isn’t the place to debate weather regulation is good or bad… what I
want to focus you on is the end result.
Regulators usually have a way of giving utilities a good share of their requested rate increases. And they almost guarantee a well run utility will generate a nice tidy profit year
in and year out.
To top it off, as if stability and regulated profits wasn’t enough, you
also have the benefit of yield.
Because the utility company doesn’t invest as much of its profits in future growth as another type of business, it can be more generous returning
profits to shareholders through dividend payments.
When dividend investors look at the different industry sectors that are generous with yields, utilities are
ALWAYS close to the top of the list.
How Utility Stocks Perform
You don’t just profit from dividends…
You see in addition to dividends, utility stocks… the good ones anyway… have the opportunity for long-term capital
appreciation. It won’t be a lot… remember those regulators while
helping insure profits, are also limiting revenue growth.
So while the long term capital appreciation may be jaded, the total
return, when you add in the dividends paid, can be attractive.
Here’s an example
Between December, 1998 and March, 2013, the S&P 500 Utility Sector delivered cumulative total return of 101% and an average
annual total return of 5.5%.
During the same period, the total market, reflected by the S&P 500, delivered a cumulative total return of 70% and an average annual total
return of 3.8%.
Over time, the dividends definitely make a difference.
Select Sector SPDR-Utilities (XLU)
So if you want to add Utility Dividends to your portfolio, an easy
way is to look at an ETF like the Select Sector SPDR-Utilities (XLU). Right now it yields 3.5% and over
the last 10 years has almost doubled in price!
You can also go the individual route, but I’ve got to warn you, it’s a
treacherous road…
Take for example three giants of America’s utility industry: Duke
Energy Corporation (DUK), Pacific Gas & Electric (PCG), and Exelon
(EXC).
Duke Energy Corporation (DUK)
Duke just started paying dividends seven years ago. It is
headquartered in Charlotte, North Carolina and serves 7.2 million
customers in 6 states.
PG&E Corporation (PCG)
Does not have a track record of growing its dividend payments. It is headquartered in San Francisco, and
serves 15 million customers.
Exelon Corporation(EXC)
Exelon has been paying dividends for years, but payouts are BELOW
where they were just 10 years ago. It is headquartered in Chicago,
Illinois and serves x million customers.
If you’re looking for an easy way to add solid returns to your portfolio, you need to consider adding Utility
stocks that pay a nice dividend. Solid dividend yields in the Utility
industry have attracted a lot of investor attention… and it’s a great
place to invest. Just pick your investment wisely.
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