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.
- Part 1: Introduction / Strategy
- Part 2: Establishing A Buy Zone and Watch List
- Part 3: Consumer Staples (3a) / "Buy Zones" (3b)
- Part 4: Utilities (4a)
- Part 5: Healthcare
- Part 6: Consumer Discretionary
- Part 7: Financials
- Part 8: Technology
- Part 9: Industrials
- Part 10: Materials
- Part 11: Energy
- Part 12: Unveiling the Portfolio
Picking Utility Stocks For The Portfolio
As you know, our goal is to build a watch list of great stocks by sector that we can use to build the portfolio over time (purchasing shares when the prices are right).
We suggested five great Utility stocks for folks to vote on in Part 4: UGI Corp. (NYSE:UGI), Aqua America (NYSE:WTR), Wisconsin Energy (NYSE:WEC), AmeriGas Partners (NYSE:APU), and Cleco Corp. (NYSE:CNL). Readers also suggested some great "write-in" votes. As a matter of fact, there were 22 additional Utility stocks suggested!
Well, we tallied up the votes and the most popular stocks among the group were Wisconsin Energy and Southern Co. (NYSE:SO). The Honorable Mention awards go to Aqua America, AmeriGas Partners, Dominion Resources (NYSE:D), American Electric Power (NYSE:AEP), and Duke Energy (NYSE:DUK).
Let's put all 7 of these stocks on our watch list and patiently wait for their respective Buy Zones.
Which Utility Stocks Are In The "Buy Zone?"
While the current Fed-induced rally has expanded P/E multiples across the board, the Utility sector has underperformed recently (primarily due to fears of higher interest rates). That said, several of our watch list Utility stocks are currently in the Buy Zone. Let's take a look at the current charts for each and compare where they trade in relation to their respective Buy Zones.
Wisconsin Energy currently trades 1.9% above its Buy Zone. Ideally, we would like to purchase the stock under $40.00 (which would equate to a forward P/E ratio around 16.0x and a forward yield around 3.75%).
Southern Company is down almost 15% from its 52-week high and the stock currently trades in the Buy Zone!
Aqua America is down approximately 12.5%% from its 52-week high and the stock currently trades in the Buy Zone!
AmeriGas Partners is down almost 15% from its 52-week high and the stock currently trades in the Buy Zone!
Dominion Resources currently trades 8.3% above its Buy Zone. Ideally, we would like to purchase the stock under $58.00 (which would equate to a forward P/E ratio around 18.0x and a forward yield around 4.0%).
American Electric Power is down over 15% from its 52-week high and the stock currently trades in the Buy Zone!
Duke Energy currently trades 1.0% above its Buy Zone. Ideally, we would like to purchase the stock under $67.00 (which would equate to a forward P/E ratio under 16.0x and a forward yield around 4.75%).
Of the watch list stocks highlighted above, APU, WTR, SO, and AEP are currently in the Buy Zone. As such, we will likely start positions in some these stocks in the coming days.
Dividend investing is a marathon, not a sprint. Identifying good stocks is easy ... patiently waiting for the right price is the hard part.
We'll send around updates throughout the entire process so please follow along and participate as much as you can. The next sector on the agenda will be Healthcare. Please make sure to "follow" us so that you will be notified when each new article is published.
Disclosure: I am long SO, WEC, CNL. 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.