Editor's Note: This article was originally published on April 29, 2014.
When you think of a rudder what comes to mind? A boat of course, or perhaps sailing. When I think of a rudder I think of stability, a force that continually rights any wrong path and generally keeps things steady. That being said, I have always favored utility stocks as my rudder in my investment portfolio. Currently, I own three such rudders: Southern Company (NYSE:SO), Consolidated Edison (NYSE:ED), and Dominion Resources (NYSE:D).
While utilities in general are not high growth businesses, they do offer tremendous stability in almost any investing environment. After all, what would we be doing without electricity? Electricity is one commodity that will always be in demand, whether generated through coal, nuclear, hydro or wind. For me, this knowledge is priceless as a dividend income investor. Let's take a little closer look at my three rudders.
First off, we have Southern Company, an electric utility that operates primarily in the south of the U.S. The company is involved in the generation, transmission, and distribution of electricity through coal, nuclear, oil and gas, and hydro resources in the states of Alabama, Georgia, Florida, and Mississippi. While not a gang-buster for forward growth, as most utilities are, it does sport a nice 4.50% yield with a 12-plus-year history of dividend growth. Boring, perhaps. Consistent high yield, yes.
Next we have Consolidated Edison, an electric, gas, and steam delivery businesses serving New York City and environs. Consolidated Edison sports hefty 4.33% yield with an impressive 39 years of dividend growth. Can you imagine the compounding effects of an investment made in ED decades ago?
Finally, we have Dominion Resources, which is another utility that produces and transports energy primarily on the east coast of the U.S. D offers patient investors a nice 3.30% yield with about five years of dividend increases. It's easy being patient with most utility stocks because of their high yield. Don't worry about these yields being too rich. Each company mentioned has very acceptable payout ratios that can almost ensure dividend increases going forward.
What do you think about adding utility stocks to a dividend portfolio?
Disclosure: Long SO, ED, D.