Top Picks 2016: Xcel Energy

01/19/2016 7:00 am EST

Focus: STOCKS

Chloe Jensen

Chief Analyst, Cabot Dividend Investor

Our Top Pick for income investors for the coming year is an electric utility serving the Midwest and West, suggests income expert Chloe Lutts Jensen, editor of Cabot Dividend Investor.

Xcel Energy (XEL) offers investors low volatility, a 3.5% yield, and consistent dividend hikes of about 5% per year. The utility has paid dividends since 1985 and has increased the dividend every year for the past 11.

While reliable and slowly rising dividends are the number one draw here, Xcel is investing in growth as well, with a particular focus on renewable energy projects.

Xcel is also in the process of spinning some transmission infrastructure off into subsidiary companies called Transcos that will bid on and build transmission projects outside Xcel’s service territory, as allowed by new Federal regulations.

From a technical perspective, XEL is an easy stock to own, with the current beta of 0.31 indicating significantly lower volatility than the broad market.

However, the stock made nearly zero progress in 2015, due largely to high anticipation of the Fed’s rate hike.

Now that (slightly) higher rates are a reality, XEL is enjoying a nice relief rally and is likely to also enjoy a longer-term reduction in selling pressure.

Coupled with consistent earnings growth, still-high demand for dividend stocks, and low energy prices, I expect this change in sentiment to make 2016 a good year for XEL.

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