Look to Utilities as a Safe Harbor

05/30/2019 5:00 am EST

Focus: UTILITIES

Tim Plaehn

Investment Research Analyst, Investors Alley

It’s time to look for some safe harbor investments. The goal is to find conservative investments where products, revenues or services are not tied to international trade, explains Tim Plaehn, income expert and editor of The Dividend Hunter.

Slowing trade expectations have also triggered a sell-off in energy prices, so that is a sector in which to lightly tread. Utilities are one sector that is historically defensive, while producing attractive dividend yields and total returns.

When the markets are doing well, utility stocks can be too boring for investors looking for action. When the market turns ugly, boring positive returns suddenly become very attractive.

I have strong personal relationships with the portfolio managers at Reaves Asset Management. Reaves has 40 years of experience in money management focused on utilities such as electric, gas, water and telecommunications companies.

Since many utility companies are highly regulated at the state level of government, I prefer to recommend utility focused investment products managed by the folks at Reaves.

The Virtus Reaves Utilities ETF (UTES) is an exchange traded fund that uses active management to generate returns superior to an index tracking ETF in the sector.

The fund was launched in May 2018. The UTES shares have returned 15.2% since inception. This fund focuses on owning utility stocks with the strongest growth potential, so it is more of a total return play instead of a high-yield income investment.

The top three holdings are NextEra Energy (NEE), DTE Energy Company (DTE) and Sempra Energy (SRE). The fund's current yield is 1.9%.

For more income focused investors, the Reaves Utility Income Fund (UTG) is a monthly dividend closed-end fund with a current yield of 5.9%.

The dividends derive from a combination of portfolio income and realized capital gains. Dividends from UTG have never been classified as return of capital.

The fund was established in February 2004. The monthly dividend has grown over time and has never been cut. It's current top three holdings are DTE Energy, Sempra Energy and Verizon Communications (VZ).

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