Dividends or Not, Utilities Need To Perform (XLU, SO, D, DUK, FPL, AEP, ETR, FE, EIX, PGN, PPL, XEL, DTE, AES, CEG, NRG, CPN, AYE, NU, PNW, POM, NST, OGE, TE)
Investors love dividends, and big stable utility stocks often have some of the highest dividends of any class of stocks. There has just been one problem… Dividends or not, utilities are sucking power and energy out of common stock portfolios of the American public. In fact, utilities have been among the worst of the worst when it comes to performance.
We wanted to take a look at Select Sector SPDR Trust (NYSE: XLU), Southern Company (NYSE: SO), Dominion Resources, Inc. (NYSE: D), Duke Energy Corporation (NYSE: DUK), FPL Group, Inc. (NYSE: FPL), American Electric Power Company (NYSE: AEP), Entergy Corporation (NYSE: ETR), FirstEnergy Corporation (NYSE: FE), Edison International (NYSE: EIX), Progress Energy Inc. (NYSE: PGN), PP&L Corporation (NYSE: PPL), Xcel Energy Inc. (NYSE: XEL), DTE Energy Company (NYSE: DTE) and more.
There may actually be some time for them to shine in the near future. Despite the rally market of the last month, almost none of these stocks are within 5% of their 52-week highs. We showed the dividend yields implied here, although as with all ‘yields’ there is often some distortion. What we did not show was a P/E ratio because of the lagging effect of that, but we did show was the closing price for March 31 as the quarter closed and compared that to the 52-week trading range and compared it to the average consensus price target from Wall Street analysts per Thomson Reuters.
So why is this sector in the spotlight? The dividend yields should be attractive enough. Most are 4% and higher. This offers defensive stock positioning, dividend yields, and the hope for some upside. Of course, some are barren of a dividend due to issues and turnarounds. That keeps investors from having to go out to REITs and take on all the risks there associated with land values and trends. Historically, utilities have been largely considered defensive stocks in hard times. Morningstar noted in its quarterly wrap-up, “Utility stocks were hurt in the quarter by falling commodity and energy prices, bearish earnings outlooks as firms reported earnings, and a generally negative view of the future of electricity demand.” The problem with that call is that energy demand is not dropping any longer and some larger companies are starting to increase their power usage again.