Utility stocks refer to shares of companies that provide essential services such as electricity, natural gas, water, and telecommunications. These stocks are often considered stable and safe investments because these companies have a steady demand for their services, allowing them to generate consistent earnings.
Utility stocks are typically known for paying regular dividends, making them attractive to investors seeking income and stability in their portfolios.
Full definition
These low - growth and above - average dividend yield characteristics have led me to only invest
in utility stocks when two important conditions are met.
If concerns over housing and economic growth persist, it may be worthwhile to consider high yield
utility stocks for lower volatility and high dividend payouts to ride out further volatility.
And to some extent, the potential for capital loss is probably higher in a pool of bonds than in a pool
of utility stocks.
And while
many utility stocks offer higher - than - market yields, getting over 6 % with a utility is really rare.
Different sectors tend to gain or lose at different times; a time
when utility stocks are up might be a time when retail stocks are down.
On the other hand, when investing at sound valuations,
utility stocks do tend to produce significantly more cumulative dividend income than the average company.
On an absolute basis, financials, energy and
utility stocks appear the cheapest based on the price - to - book (P / B) ratio.
Despite utilities having a relatively predictable business model, the current valuation level
makes utility stocks, in our opinion, risky investments.
I
think utility stocks are better in the sense that there is some inflation protection in the form of rising earnings over time.
Dividend investors have long
held utility stocks for their combination of steady growth, attractive yields, predictable revenue, and pricing power.
For example, last
summer utility stocks lived up to their reputation as a low beta, low volatility sector.
I think this is also worth keeping in mind, as many investors would
judge utility stocks mainly by dividend yield.
Last month we saw strength in utilities, and it is clear from this month's list that
utility stocks continue to hold up well relative to the rest of the equity market.
Second, I like to
utilize utility stocks when current and dependable income is my primary investment objective.
An
average utility stock sector fund might be close to a 4 % yield and a 6 % capital gain, as an illustration of how to use the sector figures.
The second factor that makes utilities great forever stocks is dividends, the secret sauce
of utility stocks.
You can use sector funds to target industries that are known to pay out high dividends
like utility stocks, REITs, mortgage REITs, or consumer staples funds.
Rising interest rates will likely have significantly negative effects
on utility stocks and other stocks that have very slow growth and pay out the vast majority of their earnings has dividends.
However, when purchased at or below sound valuation, investments
in utility stocks can produce acceptable levels of long - term total return.
The ETF has a heavy emphasis on consumer, healthcare, and financial stocks, with reasonably large exposure to technology and
utility stocks as well.
Third, there are the
public utility stocks that appear to be the best candidate as the actual trigger of the crash.
On an absolute basis, financials, energy and
utility stocks appear the cheapest based on the price - to - book (P / B) ratio.
While high -
yielding utility stocks are particularly pricey right now, some tech and health care companies have values that aren't as rich.
High Yield ETFs: By removing individual issue risk from the equation, investors can benefit from diversification in a multitude of sectors ranging from the venerable steady payout
utility stock ETFs which include the Utilities Select Sector SPDR (XLU) and Vanguard Utilities ETF (VPU), MLP ETFs, and even exploit the discounts to NAV coupled with various high yield closed end funds.
For example, a blue - chip
utility stock with an above - average yield but below - average growth might be a good source for current income at the sacrifice of above - average total return.
While the S&P 500 was up over 1 % on the day, U.S.
utility stocks lost over 3 % while consumer staples fell more than 1 %.
In looking for investment ideas among the seven best - performing industries, we are focusing on
Water Utility stocks.