Utilities: Safety and Yield
Safety never goes out of style in our Income Portfolio, no matter how optimistic or jittery the market may be, asserts Richard Stavros in Investing Daily's Personal Finance.
So we thought this would be a good time to talk about our portfolio’s safest investments based on one of our proprietary stock selection models, which helps us evaluate and monitor dividend safety.
After reviewing our portfolio, we found that two electric utilities, NextEra Energy (NEE) and Eversource (ES) have some of the best track records for safely generating strong returns on equity, making these investments excellent bets for weathering volatility.
When comparing companies with their peers, return on equity (ROE) is a key metric used by many of the world’s top investors, including Warren Buffett. A Schwab study compared 3,200 dividend-paying stocks by market cap over nearly 20 years and found those with higher ROE were less likely to cut dividends.
Eversource Energy and NextEra Energy had more than 17 consecutive quarters in which return on equity grew at least 2% because of rising profitability. They offered the strongest ROE performance in our portfolio by a mile based on their double-digit profitability.
With low betas, their share prices tend to fluctuate less under any conditions and hold their value better in a falling market. Plus, the financial guidance for both firms this year has been consistent with their past ROE performance.
Other attractive features of the three companies also contribute to dividend safety.