9 Utility Stocks for Income Without Volatility

by: Scott's Investments

Nervous about potential market volatility or want to switch to more conservative investments after the recent market gains? You may want to consider utility stocks. On November 22 I highlighted comments made by the bond king himself, Bill Gross, who suggested investors look at utility stocks for income:

Let me tell you what I’m doing. I figure, why not just buy utilities if that’s what the future American capitalistic model is likely to resemble. Pricewise, they’re only halfway between their 2007 peaks and 2008 lows - 25% off the top, 25% from the bottom. Their growth in earnings should mimic the U.S. economy as they always have, and most importantly they yield 5-6% not .01%! In a low growth environment, it seems to me that a company’s stock should yield more than its less risky debt, and many utilities provide just that opportunity. Utilities and even quasi-utility telecommunication companies now yield between 5 and 6%, whereas their 10- and 30-year bond yield less and at a higher tax rate to you the investor.

“Look at your monthly statement, zero in on that .01% yield and say to yourself, “I’m as mad as hell, and I’m just not going to take this anymore!” You can’t buy the Burlington Northern - Warren Buffett has scooped that up - and most other choices offer tempting returns, but potential bullets as well. Buy some utilities. It may not be as much fun as running a railroad, but at least you’ll know who to call if the lights go out

There are a number of ways investors can screen for utility (and telecom) stocks. I have created a screen (using Finviz.com) which searches for utility stocks yielding at least 4% and with a payout ratio of less then 60%. Payout ratio is the percentage of earnings paid to shareholders in dividends. In theory, the lower the ratio the more sustainable the dividend. However, it is fair to say that one-time earnings anomalies may exclude certain companies from the screen who in other quarters might be included.

Below is the result of the screen. Most are trading near 52 week highs. Utility stocks tend to have lower volatility then other sectors. Also, of note: BIP, CV, and GPW are all small caps (market caps under $1 billion) and could potentially below the radar screen of some investors. In addition, from a technical perspective, DPL closed at the top of an upward channel on Friday, albeit closing down $.04 (see chart at the bottom):

Ticker Company Free INO Trend Analysis Market Cap Millions Dividend Yield Payout Ratio Performance (Year) 200-Day SMA
AEE Ameren Corporation Here 6399.21 5.70% 57.21% -11.90% 12.20%
AEP American Electric Power Co., Inc. Here 16140.13 4.85% 57.31% 23.46% 19.25%
AGL AGL Resources Inc. Here 2770.15 4.81% 56.44% 34.90% 15.00%
BIP Brookfield Infrastructure Partners L.P. Here 350.62 6.80% 0.00% 49.90% 15.08%
CV Central Vermont Public Service Corp. Here 232.16 4.63% 58.97%
DPL DPL Inc. Here 3385.9 4.03% 52.27% 46.63% 20.76%
EXC Exelon Corp. Here 32507.43 4.26% 49.65% -0.36% 3.91%
GPW GEORGIA PWR PINES T Here 233.26 5.71% 0.00% 25.07% 4.30%
PEG Public Service Enterprise Group Inc. Here 16287.5 4.13% 45.07% 16.63% 5.91%
Click to enlarge

Click to enlarge: