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Allison Joyce/Getty ImagesUtility stocks person traditionally been a haven for income investors looking for bully yields.
Although the assemblage has been a laggard recently–the XLU Sector SPDR Fund (ticker: XLU) has a one-year instrumentality of astir 20%, versus 34% for the S&P 500 –yield remains a cardinal portion of the group’s appeal.
For this screen, Barron’s started with the inferior stocks successful the S&P 500, and past ranked them by yield. We past looked for companies that raised their dividends successful 2020 versus 2019 levels and are expected to summation their payouts this twelvemonth arsenic well.
| Edison International / EIX | 58.65 | 4.5 | 22.3 | -4.5% |
| Consolidated Edison / ED | 76.3 | 4.1 | 27.0 | 8.9 |
| Duke Energy / DUK | 105.68 | 3.8 | 81.3 | 18.8 |
| NiSource / NI | 25.06 | 3.5 | 9.8 | 12.2 |
| Entergy / ETR | 112.56 | 3.4 | 22.6 | 15.9 |
Prices and returns arsenic Sept. 3; different information arsenic of Sept. 7.
Source: FactSet
Just picking the 5 highest-yielding stocks successful the assemblage wasn’t enough. High yields tin presage dividend cuts.
Barron’s besides spoke with John Bartlett, president of Reaves Asset Management and a co-portfolio manager of the Reaves Utility Income Fund (UTG) for immoderate guidance.
We came up with these 5 stocks: Edison International (EIX), which precocious yielded 4.5%; Consolidated Edison (ED), 4.1%; Duke Energy (DUK), 3.8%; NiSource (NI), 3.5%, and Entergy (ETR), 3.4%.
“On a risk-adjusted basis, utilities are a beauteous bully place,” says Bartlett.
He points retired the 10-year U.S. Treasury Note was precocious yielding a small nether 1.4%, acold beneath those of astir inferior stocks. “Utilities are good here,” Bartlett says. “And we don’t commencement to get disquieted astir inferior valuations until we get meaningfully higher levels of interest” rates.
Of the 5 stocks successful our screen, Edison International, based successful Southern California, is the lone 1 that’s down this year, successful that lawsuit minus 4.5%.
Bartlett, however, calls the electrical inferior “a perfectly worthy story”—though a shorter-term interest is the California occurrence season. He likes the company’s semipermanent prospects, and expects the dividend to proceed to grow.
Consolidated Edison, based successful New York City, faces a challenging regulatory setting, helium says, and doesn’t person the maturation that immoderate utilities do. But Bartlett believes the dividend looks safe.
Duke Energy, helium says, is fine. “There’s truly thing incorrect with Duke.”
Through Sept. 3, the Charlotte-based utility’s banal had returned astir 19%, tops among the 5 companies successful this screen.
NiSource, based successful Indiana, has returned astir 12% this year. It’s a afloat regulated inferior with astir 3.2 cardinal earthy state customers and different 500,000 electrical customers crossed six states.
Entergy, based successful New Orleans, took a large deed from Hurricane Ida, which knocked retired powerfulness successful overmuch of that region. But the banal has held comparatively steady, gaining 0.7% since Aug. 27–compared with astir 0.1% for the utilities prime SPDR.
Besides Louisiana, the company’s inferior footprint covers Mississippi, Arkansas and Texas.
The banal “has fixed a small backmost due to the fact that of the hurricane,” says Bartlett, who maintains the company’s dividend is safe.
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com
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