Disconnect Between Utility Stock and Telecom? (ETFs: UTH, IDU, XLU, TTH; Stocks: VZ, BLS, SBC)

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Includes: BLS, T, VZ
by: David Jackson

An interesting observation by Michael Santoli in this week's Barron's:

  • The Utilities ETF XLU is up 20% year to date, whereas the Telecom HOLDRs ETF (ticker: TTH) is down 15%.
  • The reason? "Steadily growing power demand and the companies' ability to pass along cost increases via higher prices."
  • But the aggregate dividend yield of telecom stocks exceeded that of utility stocks for the first time this year, according to Goldman Sachs.
  • "The largest telecom companies -- Verizon (NYSE:VZ), SBC Communications (SBC) and BellSouth (BLS) -- have yields ranging from 4.7% to 5.8%. They also have the odd distinction of having their collective dividend yield being higher than the real yield on their bonds."
  • The market value of the utility sector now exceeds that of the telecom sector, despite that fact that it has zero free cash flow compared to annual free cash flow of about $15 billion for telecom.

Full article here (paid subscription required).

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Full disclosure: short VZ, BLS and SBC (some via puts) at the time of writing. « Any opinions expressed on the Seeking Alpha sites are those of the individual authors and do not necessarily represent the opinion of SeekingAlpha or its management. »