We hear it all the time that rates are going higher, so don’t buy income-related stocks like real estate investment trusts and utilities. Despite almost a near certainty the Federal Reserve will raise rates in December, the only yields going higher are short term. In fact, the yield on the one-year Treasury bill has hit the highest levels in years, while the 30-year Treasury bond still trades near generational lows at a 2.89%.
The bottom line for income investors, especially those who have been hammered with low CD rates at banks for years, is the utility sector is still a good place to look for dependable and safe dividends.
A new research report from SunTrust Robinson Humphrey acknowledges that third-quarter results may decline due to milder weather and higher costs, but the firm sees increases of 17% in the fourth quarter and a 5% increase in 2018. The analysts have five stocks that are rated Buy that all pay outstanding dividends. All make good sense for more conservative income accounts.
This company is an off-the-radar choice that has solid upside potential from current levels and is a top mid-cap pick at SunTrust. AES Corp. (NYSE: AES) owns and operates power plants to generate and sell power to customers, such as utilities, industrial users and other intermediaries. The company also owns and operates utilities to generate or purchase, distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors. It also generates and sells electricity to the wholesale market.
AES uses a range of fuels to generate electricity, including natural gas, coal, hydro, wind, energy storage, oil, diesel, petroleum coke, biomass, landfill gas and solar. The company owns and operates a generation portfolio of approximately 29,352 megawatts. It has operations in the United States, Chile, Colombia, Argentina, Brazil, Mexico, Central America, the Caribbean, Europe and Asia.
AES shareholders receive a 4.31% dividend. The SunTrust price objective for the shares is $15, and the Wall Street consensus is $13.16. The stock traded early Monday at $11.10.
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.
The company 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.
AEP shareholders receive a 3.2% dividend. SunTrust has an $80 price objective, and the consensus estimate is $72.93. Shares traded Monday morning at $73.80.
Shares of this top utility got hit last month and are offering a solid entry point, plus it continues to raise its dividend regularly. Edison International (NYSE: EIX) generates electricity through hydroelectric, diesel, natural gas, gas fueled, combustion turbine, nuclear and photovoltaic sources. It supplies electricity primarily to residential, commercial, industrial, agricultural and other customers, as well as public authorities through transmission and distribution networks.
Edison International remains well positioned to compete in the market place. The company says that the billions it is spending on upgrades goes predominantly to its networks, and that it only owns about 15% of the generation that its customers consume. The other 85% is purchased on the open market.
Shareholders receive a 2.73% dividend. The $89 SunTrust price objective compares with the consensus target of $84.04. The stock was last seen at $79.40.
This top utility stock also still makes good sense now for conservative accounts. Shares have traded up some this year, but are still offering a great entry point. Exelon Corp. (NYSE: EXC) is the nation’s leading competitive energy provider, with expected 2017 revenues of approximately $31.7 billion. Headquartered in Chicago, Exelon does business in 48 states, the District of Columbia and Canada. Exelon is one of the largest competitive U.S. power generators, with approximately 32,500 megawatts of owned capacity comprising one of the nation’s cleanest and lowest-cost power generation fleets.
Its Constellation business unit provides energy products and services to more than 2.5 million residential, public sector and business customers, including more than two-thirds of the Fortune 100. Exelon’s utilities deliver electricity and natural gas to more than 7.8 million customers in central Maryland, northern Illinois and southeastern Pennsylvania.
Exelon investors receive a 3.31% dividend. SunTrust has set its price target at $43. The consensus target is $41.28, and shares traded at $39.50.
This rounds out the SunTrust Buy-rated utility stocks that pay big dividends. PPL Corp. (NYSE: PPL) serves 321,000 natural gas and 397,000 electric customers in Louisville and 16 surrounding counties, and 543,000 customers in 77 Kentucky counties and five counties in Virginia. The company also provides electric delivery services to approximately 1.4 million customers in Pennsylvania and operates electricity distribution network for the Midlands, South West, and Wales in the United Kingdom.
In addition, the company offers a range of customer-care and back-office services to competitive retail energy suppliers, including customer enrollments; contract management; electronic data exchange; simple and complex billing; and call center operations comprising telemarketing, payment processing and collections of overdue accounts.
Investors receive a 4.20% dividend. The SunTrust price target is $43. The consensus target is $39.92, and PPL traded at $37.75.
The huge capital gains for the sector from the quantitative easing days may be in the rear-view mirror, but that doesn’t change the upside potential for these top companies. Even with rate increases continuing to hit the tape, they will remain small and very slow, if at all, and should have a negligible effect. These top stocks make excellent additions to growth and income total return portfolios looking for safety now.