Utilities: The Best Performing Sector by Capital Appreciation Offers Above-Average Dividends as Well
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Electric utilities are currently the best performing sector in the S&P 500, up 14.5% over the past 12 months. These companies also offer dividends which far surpass the 1.96% yield on the S&P 500. In addition to the high performance, these stocks are considered fairly safe on the whole. Many utilities still operate in a regulated environment, able to raise their rates through petitioning regulators instead of through market competition. In addition, many companies choose to hedge their output with the use of weather derivatives. As a result of their steady cash flows, these companies typically have strong balance sheets, and the ability to weather poor macroeconomic conditions.
Let’s take a look at some of the leaders in this strong performing sector.
Southern Company (NYSE: SO) up 17.8% over the past 12 months. Southern Company offers strong cost controls and an increasing cash flow that already amply supports their capital expenditures. Regulated utilities make up a sizeable portion of the company’s assets which provide earnings stability and the ability to grow the dividend a few percentage points a year. The company also offers a dividend with a 4.2% yield.
Duke Energy (NYSE: DUK) up 19% over the past 12 months. The company has recently experienced some financial pressure from reduced kilowatt-hour sales. However, Duke Energy is expected to continue to realize cost-savings from their merger with Cinergy. Cost controls at this company are also strong, and the stock offers a dividend yield of 4.8%.
PPL Corp (NYSE: PPL) up 15.1% over the past 12 months. PPL’s Pennsylvania area assets continue to perform strongly. Margins are expected to improve from the scaling back of construction spending and PPL’s two proposed rate hikes are expected to be passed by regulators. The stock carries a dividend yield of 4.7%.
American Electric Power (NYSE: AEP) up 11.5% over the past 12 months. American Electric Power is also expected to have rate hikes approved by regulators, allowing for some top-line growth to offset slowing demand. The company’s holdings are spread out over a wide geographic footprint, spreading over 11 states, diversifying their market exposure. The company also boasts increasing cash flow and strengthening cost controls. The stock offers a dividend yield of 4.7%.
These are just some of the names in this sector. Investors interested in utilies may wish to explore diversified ETFs to start, such as the SPDR Select Utilities Sector ETF (NYSEMKT: XLU).
The author does not own any financial interest in the company mentioned. Forward looking statements in the article are the author's opinion, and no guarantee can be provided of their future validity.
