Utility stocks, July's biggest loser, lose their sizzle


Investors who had flocked to utility stocks now may be wondering what went wrong, after the sector was the S&P's worst performer in July.

Fears of rising interest rates have recently sent dividend-paying stocks and high-yield junk bonds tumbling; utility stocks also have been hurt by the power sector's growing exposure to volatile natural gas prices, which have dropped ~19% since mid-June.

Some analysts think dividend growth among utilities could slow or even stop, with power demand falling and utilities being forced to spend record amounts on replacing and upgrading aging plants and meeting stricter emission standards; Exelon (NYSE:EXC) and FirstEnergy (NYSE:FE) are big utilities that have cut dividends this year.

Utilities that auction the power they generate - and are most exposed to moves in gas prices - have fallen the most; NRG and EXC have lost 20% and 13%, respectively, since the end of June.

Regulated utilities such as Southern Co. (NYSE:SO) and Duke Energy (NYSE:DUK), whose rate changes are more closely controlled, haven't been hit as hard.

ETFs: XLU, IDU, VPU, NLR, JXI, NUCL, UPW, RYU, DBU, IPU, FUTY, FXU, SDP, UTLT

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Comments (10)
  • chuck lewis
    , contributor
    Comments (436) | Send Message
     
    Chuck Lewis The Lewis Letter - Editor
    Con Ed has plenty of sizzle beating on earnings and revenues.
    New York City growth is vertical not horizontal and has a $76
    PT.
    9 Aug 2014, 10:38 AM Reply Like
  • smurf
    , contributor
    Comments (6261) | Send Message
     
    Yeah, but those of us who "flocked" to them a year or two or three ago are very happy. During the recent little correction, they performed well.
    9 Aug 2014, 11:05 AM Reply Like
  • giofls
    , contributor
    Comments (2179) | Send Message
     
    May want to look at this chart before you write next time:

     

    http://bit.ly/1vqk1lq
    9 Aug 2014, 11:49 AM Reply Like
  • ritecoast707
    , contributor
    Comments (21) | Send Message
     
    Losers for one month. Sounds like the end of the world. Time to go for a swim . . .
    Long AEP, PPL, SO, WEC
    9 Aug 2014, 02:58 PM Reply Like
  • celticxxx
    , contributor
    Comments (2) | Send Message
     
    Who ever wrote this article has no clue how utilities income is calculated by Public Service, saying replacing aging systems is a negative,tell you you they are not an expert, rate of return for utilities is calculated on total plant investment, and you earn on all the expeditures you spend, usually 10 to 12 % and that is why they pay 4 to 5 percent in dividends. just because one company may cut its dividend, does not speak for the majority
    9 Aug 2014, 08:30 PM Reply Like
  • toomuchgas
    , contributor
    Comments (1019) | Send Message
     
    I think you are high on the return on assets of public utilities. The return on total assets for 2nd quarter 2014 was 2.7% which is about as high as it gets. Return on equity was 10.27% which is in the upper range of what to expect. Many of the state regulators only allow a ROE in the high 8s which is why some of the utilities are having a hard time maintaining and raising their dividends. As interest rates have fallen regulators have become less generous with how much ROE they allow.

     

    That said, still long DUK, EXC, POM, OTTR, TE
    9 Aug 2014, 10:58 PM Reply Like
  • june1234
    , contributor
    Comments (4406) | Send Message
     
    I'll buy rising rates impacting utes going forward but not their business model.
    In summer of 13 NC regulators approved a 7.5% rate increase for Duke energy. West Virginia power companies just requested for a 17% rate hike(means they'll get 50% of that) while Baltimore gas & electric just filed for its 4th rate increase request in 4 years. With coal burning plants shutting down across the country don't expect that nationwide trend to stop.

     

    http://bit.ly/1sqFhp3
    http://bit.ly/1sqFhp6
    10 Aug 2014, 08:36 AM Reply Like
  • uteinvestor
    , contributor
    Comments (42) | Send Message
     
    This is all old news if this article was written 2 months ago it might have been good for something. IMHO the utilities short term look like they are going to bounce back. Ten year bond is low and some of these utilities are paying a 4.5% dividened. I am only getting .3% in my money market. My local rates are going up over 13% in the next two years.
    10 Aug 2014, 09:23 AM Reply Like
  • june1234
    , contributor
    Comments (4406) | Send Message
     
    Yeap. California PUC just mandated a $5B increase in power rates for states 2 largest utilities PG&E and Edison. Increase is retroactive to March 27 when PUC passed the measure. Some will see huge increases. http://abcn.ws/1nFlLNQ
    10 Aug 2014, 10:00 AM Reply Like
  • Whiterabbit66
    , contributor
    Comments (400) | Send Message
     
    IMHO now is a good time to buy more VPU. SO etc.
    10 Aug 2014, 12:13 PM Reply Like
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