Why It's Time To Look At European Utilities

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 |  Includes: CPYYY, DRXGY, ECIFY, EDPFY, ENGGY, ENGIY, ENLAY, EONGY, FOJCY, GASNY, IBDRY, NGG, OEZVY, PEGRY, RDEIY, RWEOY, SNMRY, SZEVY, TEZNY, UUGRY, VE
by: David Hunkar

The STOXX® Europe 600 Utilities Index can be considered as a proxy for the European utility sector. The index is comprised of 25 utilities from the continent. As of November 25, 2012, the index is down over 58% in the past five years in U.S. dollar terms. Since 2008, the index has been on a downtrend trend as shown in the chart below. The sector may be ready for a rebound from the current lows as extreme pessimism haunts European stocks.


Click to enlarge

Source: STOXX

How to invest in European Utilities?

Unfortunately there is no European utility sector-specific ETF available on the U.S. markets for investing in European utilities. ETFs tracking the STOXX utilities index and trading on the European markets include the STOXX EUROPE 600 UTILITIES ETF by db X-Trackers, iShares STOXX Europe 600 Utilities, SPDR MSCI Europe Utilities ETF and Lyxor ETF STOXX Europe 600 Utilities fund.

Many of these utility stocks are off by double digit percentages due to regulatory issues such as plans to end nuclear power generation by Germany, high uncertainty towards the sector due to the ongoing fiscal crisis in some eurozone countries, reduction of dividend payments by some companies and investors' general apathy towards all European stocks. While all these factors are understandable, many of the worries are way overblown. Despite the fall in share prices, the sector continues to pay juicy dividends and has the potential to raise dividends when the crisis ends. Another way to look at the current situation is that most of the negative views are already reflected in the current stock prices.

The table below lists the components of The STOXX Europe 600 Utilities Index with the ADR tickers if available and the current dividend yields:


S.No. Company Ticker Dividend Yield as of Nov 26, 2012 Country
1 CENTRICA OTCPK:CPYYY 4.77% U.K.
2 DRAX GRP OTCPK:DRXGY N/A U.K.
3 E.ON OTCQX:EONGY 7.25% Germany
4 EDF OTCPK:ECIFY 7.81% France
5 EDP ENERGIAS DE PORTUGAL OTCPK:EDPFY 9.38% Portugal
6 ENAGAS OTCPK:ENGGY 6.48% Spain
7 ENDESA N/A N/A Spain
8 ENEL OTCPK:ENLAY 8.92% Italy
9 ENEL GREEN POWER N/A N/A Italy
10 FORTUM [[FOXJCY.PK]] 7.27% Finland
11 GAS NATURAL SDG OTCPK:GASNY 7.12% Spain
12 GDF SUEZ GDFZY.PK 13.35% France
13 IBERDROLA OTCPK:IBDRY 0.72% Spain
14 NATIONAL GRID NGG 5.56% UK
15 PENNON GRP OTCPK:PEGRY N/A UK
16 RED ELECTRICA CORPORATION OTCPK:RDEIY 9.83% Spain
17 RWE OTCPK:RWEOY 6.30% Germany
18 SCOTTISH & SOUTHERN ENERGY N/A N/A UK
19 SEVERN TRENT N/A N/A UK
20 SNAM RETE GAS OTCPK:SNMRY 9.84% Italy
21 SUEZ ENVIRONNEMENT OTCPK:SZEVY 7.67% France
22 TERNA OTCPK:TEZNY 6.98% Italy
23 UNITED UTILITIES GRP OTCPK:UUGRY 4.63% UK
24 VEOLIA ENVIRONNEMENT VE 8.44% France
25 VERBUND OTCPK:OEZVY 3.39% Austria
Click to enlarge

Showing 1 to 25 of 25 entries

Note: Dividend yields noted are as of Nov 26, 2012.

Investors looking to add European utilities and willing to hold for at least five years can add some of these stocks at current or lower levels in a phased manner.

Disclosure: Long EONGY, VE, RWEOY, FOJCY