Every once in a while, you will read or hear about the frothy market or a potential downturn is and will happen, maybe soon. In the stock market the only perfect information is the information that has already happened, no one knows why the market will go down, although if the Federal Reserve does raise interest rates that would be a positive sign markets will turn – alternatives will be available. For now, you can hope markets will continue to go up, but by being cautious or prudent it is necessary to look at traditional alternatives which defend your portfolio from the downside.
For dividend investors, one of the reasons to like utilities is they have a monopoly and regulators tend to increase the prices every year, however the issue is which company or companies to invest in?
Gary Christie Head of North American research at Trading Central offered some ideas:
He used his Trading Central Strategy Builder to search for US utilities, his criteria was:
minimum market capitalization of $10 billion which tends to lead to well-established companies and ideally less volatility in the stock price.
select stocks with a P/E Ratio at or below the S&P 500 index which at the time was 30.
dividend yield better than the average of the S&P or higher than 1.6%
want companies with a positive average dividend growth rate over the past 5 years
low debt-to-equity ratio or low leverage, understanding utilities need debt to build capital improvements
Company Mkt Cap Div 5 Yr Div Debt/ P/E Ytd 1 Yr Recent
$ bil Yld% Yld % Eq. Perf % Per % Price
Algonquin Power 10.2 3.7 9.4 0.9 20.6 2.8 11.2 21.71
Public Service Ent 28.5 3.5 4.4 1.1 14.9 -3.3 -6.2 57.54
WEC Energy Group 28.7 3.0 9.3 1.2 23.8 -1.3 -8.0 90.86
Atmos Energy Group 11.4 2.8 8.0 0.7 18.6 -4.8 -21.9 91.29
Exelon Corp 40.0 3.7 4.0 1.2 16.9 -2.8 -14.2 42.52
Sempra Energy 34.6 3.5 7.9 1.3 18.5 -5.9 -24.4 122.84
Evergy Energy 12.0 4.1 7.0 1.2 18.9 -5.0 -27.0 54.14
Consolidated Edison 24.0 4.3 3.1 1.3 17.7 -1.0 -24.2 71.32
Alliant Energy 12.2 3.3 6.2 1.2 18.3 -4.9 -17.1 49.45
Ameren Corp 18.6 2.7 3.6 1.3 22.0 -3.8 -7.3 75.57
Linking to dividend paying stocks, utilities are a favorite for dividend investors because they generally are dependable over the long term, you may want to start with the company you pay utilities to, then move across the region and country. With utilities you can check their highs and lows of the stock price and buy the companies for the dividend.
There are more questions than answers, till the next time – to raising questions.