Boring utilities could be the right prescription for this scary market, asserts Harry Domash, income specialist and editor of Dividend Detective.
Utilities are one of the few market sectors showing strength these days. They provide products that everyone needs regardless of which way the economy is heading, namely electricity, water and natural gas.
Another advantage of utilities is that many of them pay high dividends. Thus, even if share prices drop, you'll still be collecting substantial income while you wait for the market to recover.
With that in mind, I used my favorite stock screener to scan the market for utility stocks worth considering. To begin, I limited the list to U.S.-based utilities,
For stocks, the dividend yield (annual dividend divided by price you pay for stock) is analogous to the interest rate you receive on a bank account. As such, I used a dividend yield filter to limit the list to utilities paying high dividends of 3% or more.
Most utilities operate relatively stable businesses, in terms of earnings per share. However, I've found that generally, stocks with the fastest earnings growth tend to outperform their category. So, I focused on stocks with 5% EPS growth this yet, next year and for the next 5 years.
I also wanted to follow the "smart money" and limited the list to utilities in favor with the smart money by specifying “Over 80%” for “Institutional Ownership.”
Finally, as you've probably already heard, in the stock market, “the trend is your friend.” So, I used a “Performance” filter to isolate uptrending utility stocks. My screen turned up four utilities paying 3% plus dividend yields.
Evergy (EVRG) delivers electricity to 1.6 million customers in Kansas and Missouri. The dividend yield is 3.2%.
First Energy (FE) serves six million electricity customers in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York, has 3.3% dividend yield.
NRG Energy (NRG) serves six million electricity customers in Texas, an has a 3.3% dividend yield.
UGI Corporation (UGI) delivers propane, liquefied petroleum gases, natural gas and renewable energy products to customers in numerous states and in 17 European countries, and offers a 3.8% dividend yield.
As always, consider these utilities to be research candidates, not a buy list. The more you know about your stocks, the better your results.