DIY Dividend Investors Club (Part 4): Picking The Best Utility Stocks

 |  Includes: APU, CNL, UGI, WEC, WTR
by: Parsimony Investment Research

We launched a new series of articles last week with the premise of building a dividend portfolio from scratch by leveraging the collective knowledge and opinions of the Seeking Alpha community. In parts 1 and 2, we highlighted the investment plan and strategy for the portfolio and parts 3-11 will highlight each sector in the S&P 500, including high-rated stocks within each sector to consider for the portfolio. Readers can either vote on the stocks we suggested for the portfolio or "write in" their own stocks to vote on. Majority will rule.

Below is a schedule of the entire series. Please make sure to "follow" us so that you will be notified when each new article is published.


While the Utilities sector has underperformed the broader market over the past 5 years, it has by far the highest average dividend yield (4.0%) of any sector in the S&P 500. Rising interest rates tend to put pressure on higher yielding stocks and Utility stocks have felt the pain recently.

From a risk-reward perspective, the Utilities sectors has the lowest average beta (0.43) of any sector in the S&P 500. Stocks with low betas tend to be less volatile than the general market, which will help dampen overall portfolio volatility.

Given the characteristics above (higher relative yield and lower relative beta), the Utility sector is another sector that we suggest an "overweight" allocation in (15%-20% of total portfolio).

That said, below are several high-rated Utility stocks to consider. Please vote in the comment section below for your 3 or 4 favorites. Feel free to "write-in" your own votes...remember that this is a democracy!


UGI is the sole General Partner and owns 26% of AmeriGas Partners (NYSE:APU), the nation's largest retail propane distributor. The company has paid common dividends for 128 consecutive years and raised its dividend in each of the last 25 years (including a 7.0% compound annual growth rate over the past 10 years).

Aqua America Inc. (NYSE:WTR)

While Aqua America has the lowest dividend yield of this group, the company has increased its dividend at a compound annual rate of 7.6% over the past 10 years. WTR recently increased its quarterly dividend by 6.1%, which was its 22nd dividend increase in 21 years. Aqua has paid a consecutive quarterly dividend for more than 65 years.

Wisconsin Energy Corp. (NYSE:WEC)

Wisconsin Energy has delivered shareholders a 120% total return over the past five years, and it has increased its dividend at a compound annual rate of 19.7% over that period. In addition, the company still has a very modest payout ratio of 47.5%, so it has plenty of room to continue to increase its dividend in the future.

Amerigas Partners

Amerigas Partners is a Master Limited Partnership ("MLP") operating as a retail and wholesale distributor of propane gas. The company's 7.7% yield is very attractive, but investors should note the MLP K-1 tax filing requirements. APU has delivered shareholders a 102% total return over the past five years, and it has increased its dividend at a compound annual rate of 5.6% over that period.

Cleco Corp. (NYSE:CNL)

Cleco Corp. has a long and stable dividend track record. In fact, the company has paid dividends to its shareholders since 1935. That said, up until 2010, CNL had not increased its dividend since 2002. However, the company seems to have turned over a new "dividend growth" leaf recently as it has increased its dividend at a compound annual rate of almost 15% over the past 3 years.


Any DIY Dividend Portfolio should include several stocks from the Utilities sector. Stocks in this sector tend to be stable dividend payors with low relative betas, which will help dampen overall portfolio volatility.

FEEDBACK REQUEST: Please vote for your favorite Utility stocks in the comments section below. If you don't like any of the suggestions above, please feel free to "write-in" a vote of your own. Remember ... majority rules!

In Part 4b of this series, we will highlight our specific "Buy Zones" for each of these stocks which will help us determine whether or not to pull the trigger on any of the stocks that we choose to put on our watch list. Please make sure to "follow" us so that you can participate in the entire process.

Disclosure: I am long CNL, WEC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.