Investors should sell the following dangerous -
rated utility sector ETFs:
We still
rate the Utilities sector as Unattractive, and only three Utilities stocks earn our Attractive - or - better rating, but the new tax law does give a tangible benefit to the sector that the market doesn't seem to be factoring in to its valuation.
Not exact matches
Not all analysts though, are buying the
sector's story, noting the rising interest
rates could soon sink many of the outperforming
utility names.
Meanwhile the
utilities sector fell 1.37 percent, with United Utilities Group tumbling over 4 percent, after HSBC slashed its target price and rating on t
utilities sector fell 1.37 percent, with United
Utilities Group tumbling over 4 percent, after HSBC slashed its target price and rating on t
Utilities Group tumbling over 4 percent, after HSBC slashed its target price and
rating on the stock.
The only
sectors not participating are interest -
rate sensitive REITs and
utilities, which are bond proxies.
Lascelles is also keen on more interest
rate — sensitive
sectors here in Canada like
utilities and REITs.
Weighed down by rising interest
rates, real estate and
utilities are two of the worst - performing
sectors this year.
However, as
rates begin to normalize, valuations on
utility stocks, as well as other dividend - paying
sectors, are likely to come down — a process already well underway.
Most likely it was the near doubling of interest
rates, which tend to disproportionately impact those
sectors, such as
utilities, owned primarily for their dividend yield.
Will cutting
rates really boost the
sectors that did much of the damage to April's GDP report like resources (can't influence commodities),
utilities (can't influence weather, with
utilities output just coming off a large surge in Jan / Feb) and manufacturing (bigger challenges than CAD)?
As such, traditionally defensive
sectors, like
utilities and telecommunications, typically become increasingly vulnerable in a rising
rate environment due to their existing large debt positions.
Only the Financials and
Utilities sectors have seen increases in expected earnings growth
rates since the start of the quarter.
There are no ETFs in the
utility sector with an attractive - or - better
rating.
One of the often - heard concerns about rising
rates is the negative effect it could have on «bond proxy»
sectors such as
utilities and REITs.
In Q4, agriculture, crude petroleum and natural gas, construction, transport,
utilities, hotels and restaurants, professionals, administrative and support services, arts, entertainment and recreation were all growing at disparate
rates of growth, some marginal, but growing all the same, unlike the poor state of
sectors even as at the end of the third
sectors.
Tim Woodcock The co-founder of HomeEdison noted the Renewable Energy (RE)
sector's ability to deliver alternative energy at substantially lower costs than standard
utility rates; the importance of building a two - way energy supply infrastructure in order to allow homeowners and business to sell the excess energy their alternative installations generate back to the
utility company; and the applicability of geothermal systems in much of our region.
In their statement, they said, «This endorsement of Nana Akufo - Addo has become very necessary considering the high level of incompetence, corruption, mismanagement of the economy, high
rate of unemployment, killer taxes, collapsing of the private
sector businesses, high
utility bills, nepotism, tribal politicking etc. under the 8 years rule of John Mahama NDC.
The
utility sector has the most to lose from rising interest
rates.
Many equity
sectors offering high yields (such as
utilities) are expensive and the most vulnerable to a rise in
rates.
Particular winners of lower federal funds
rates are dividend - paying
sectors such as
utilities and real estate investment trusts (REITs).
The information technology
sector is cyclical and generally has performed well in increased interest
rate periods, while the
utilities sector has significantly underperformed.
However, as
rates begin to normalize, valuations on
utility stocks, as well as other dividend - paying
sectors, are likely to come down — a process already well underway.
BCE INC. $ 56 (Toronto symbol BCE; Conservative Growth and Income Portfolios,
Utilities sector; Shares outstanding: 840.3 million; Market cap: $ 47.1 billion; Price - to - sales ratio: 2.2; Dividend yield: 4.6 %; TSINetwork
Rating: Above Average; www.bce.ca) is Canada's largest telephone provider, with 5.0 million customers in Ontario and Quebec... Read More
Lydon notes that NOBL is lightly allocated to the
utilities and telecom
sectors, so it is not as vulnerable to rising interest
rates as some rival dividend funds.
He suggests it may hold up as
rates rise since it is lightly allocated to
utilities and has no exposure to telecom, two
sectors that are most adversely affected by higher interest
rates.
INNERGEX RENEWABLE ENERGY INC. $ 15 (Toronto symbol INE; High - Growth Dividend Payer Portfolio,
Utilities sector; Shares outstanding: 108.6 million; Market cap: $ 1.6 billion; Dividend yield 4.4 %; Dividend Sustainability
Rating: Above Average; www.innergex.com) operates 31 hydroelectric plants, 21 wind farms and one solar power field.
INNERGEX RENEWABLE ENERGY INC. $ 15 (Toronto symbol INE; High - Growth Dividend Payer Portfolio,
Utilities sector; Shares outstanding: 108.6 million; Market cap: $ 1.6 billion; Dividend yield 4.4 %; Dividend Sustainability
Rating: Above Average; www.innergex.com) operates... Read More
From an economic perspective, faster GDP growth historically benefits cyclical
sectors, which include financials and energy, while the defensive
sectors like
utilities have historically underperformed in a faster growth environment due to rising interest
rates.
On the other hand, while rising
rates benefit financial stocks, they have historically hindered interest -
rate - sensitive
sectors like
utilities and REITs.
Further growth of Nevada's distributed PV
sector, however, is uncertain because Nevada's Public
Utility Commission recently approved several changes to the net - metering tariffs, including phasing in lower net - metering compensation
rates and higher monthly fixed charges for distributed PV customers.
But it appears that the state's powerful union
sector is feeling the heat from its members and employers, angered that energy - rich California now has the «lower 48's» highest average electric
utility rates for residential, commercial, industrial and transportation at 17.55 cents per kilowatt hour.