Vectren: A Utility Favorite

05/09/2017 2:50 am EST


Charles Carlson

Editor, DRIP Investor

Going into 2017, I’m not sure you would have found many investors bullish on the utility sector, observes income investing expert Chuck Carlson, editor DRIP Investor.

With interest rates expected to rise and investors pivoting hard from defensive, dividend-paying issues to economically sensitive issues in the second half and especially the fourth quarter of 2016, the idea that utilities would be a leading group seemed a stretch.

Well, as is often the case on Wall Street, the consensus opinion was wrong. Indeed, the Dow Jones Utility Average has been the best performer this year among the Dow indices.

While I’m still not willing to bet that utilities will maintain their strong performance for the remainder of this year, I do think the group  continues to offer attractive issues.

One utility that has been especially impressive is Vectren (VVC). Headquartered in Evansville, Indiana, Vectren’s energy delivery subsidiaries provide gas and electricity to more than 1 million customers in adjoining service territories that cover nearly two-thirds of Indiana and west central Ohio.

Vectren’s non-utility subsidiaries and affiliates offer energy-related products and infrastructure services to customers throughout the U.S.

The company has been growing nicely and should post record per-share profits in 2017. Dividend growth should be above average for the group. Vectren currently yields 2.8%, a bit on the low side for utilities but reflective of the company’s growth potential.

The stock could pull back should interest rates begin to rise and investors shift back to a “risk-on” market. Still, for the utility portion of a DRIP portfolio, these shares fit quite well.

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