Wednesday came and went pretty much as expected. The Federal Reserve didn’t raise interest rates, but it was pretty clear that a rate increase could be in the cards in December. Once again, even if the Fed does raise in December, the federal funds rate will still be below 1%, and historically that is still way below normal levels. While many firms have turned negative on the bond proxy stocks like utilities, real estate investment trusts and telecoms, the bottom line is they still offer some opportunity for more conservative investors.
A new Deutsche Bank research report recapitulates the firm’s overall forecast for 2016 that was published late last year, and it notes that while utilities have given up about half of their year-to-date gains since July, they still remain rich on a valuation level.
Deutsche Bank has a very selective list of five top pick utility stocks to Buy. All make good sense for income investors looking for dividends and relative safety.
American Electric Power
This industry leader is also a solid dividend-paying company. American Electric Power Co. Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.3 million customers in 11 states. It ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
Many on Wall Street feel that the stock trades at a discount to its utility peers and they feel it deserves a premium. The company posted solid second-quarter numbers that exceeded consensus expectations. While industrial sales declined for a third year, it remains a stock the analysts favor.
Shareholders are paid a solid 3.38% dividend. The Deutsche Bank price objective for the stock is $72, and the consensus target price is $71.32. Shares closed on Wednesday at $66.19.
This stock offers a solid dividend and good upside potential. CMS Energy Corp (NYSE: CMS) operates as an energy company primarily in Michigan through three segments. The Electric Utility segment engages in the generation, purchase, transmission, distribution and sale of electricity to residential, commercial and diversified industrial customers in lower Michigan.
The Energy Utility segment is involved in the purchase, transmission, storage, distribution and sale of natural gas. This segment’s gas transmission, storage and distribution system comprises 1,686 miles of transmission lines; 15 gas storage fields with a total storage capacity of 309 billion cubic feet and a working gas volume of 151 billion cubic feet; 27,537 miles of distribution mains; and seven compressor stations with a total of 157,939 installed and available horsepower. The Enterprises segment engages in the independent power production and marketing activities.
CMS shareholders are paid a 2.85% dividend. The Deutsche Bank price objective is posted at $46. The consensus target is $45.25, while the shares closed most recently at $43.60.