Entering text into the input field will update the search result below

The Dichotomy Of Utility Dividends

Apr. 11, 2011 8:45 AM ETAPU
Jim Trippon profile picture
Jim Trippon's Blog
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.
A lot of income investors think of utilities stocks as dividend nirvana. Good payouts and high yields from companies that provide an essential service and face little in the way of competition. If only things were that easy. There's no such thing as a free lunch, especially in the world of investing, and income investing in the utilities sector proves that.

Utilities are known for paying out a big chunk of their net income in the form of dividends, which is nice and that results in high yields, but that can also result in anemic dividend growth and the potential for dividend cuts. Many utility companies will raise their dividends for an extended period of time, particularly when interest rates are low, only to slash the payout back to or close the starting point. Then the increases will resume and the pattern begins again.

That makes buy-and-hold dividend investing with utilities somewhat risky. For investors that need immediate income, the utilities sector will work, but for investors that are building a long-term income generating portfolio, it pays to be extremely selective when it comes to the utilities space. Take a look at the chart below to get a sense for what a mixed bag utilities can be when it comes to dividends.

dividend,dividend stock,dividends,dividend stocks,high dividend stocks,high yield dividend stocks,best dividend stocks,dividend investing,dividend investment,dividend genius,dividend stock genius,global profits alert,jim trippon

One sub-sector of the utilities universe that has delivered tidy returns over the past year and still has some gas left in its tank (no pun intended) is the gas utilities group. Despite the fact that natural gas prices have been depressed for several years now, consumption of the commodity is rising in the U.S. and if any congress and president (not just the current ones) want to make a real go of reducing America's addiction to foreign oil, natural gas is going to have to be part of the equation.

Projections show that industrial natural gas demand will increase from 7.3 trillion cubic feet in 2009 to 9.4 trillion cubic feet in 2020, according to Insider Monkey. Insider Monkey actually published a list of 15 gas utilities with yields of at least 3.5%, so as you can see, this corner of the utilities market is chock full of prospects for savvy income investors.

Several of the names on the list are stocks we have recommend to clients and subscribers over the past few years and names we continue to like today. One example would be propane utility AmeriGas Partners (NYSE: APU). The dividend has grown by almost 60% since 1995 and the shares currently yield 6.1%.

That's just one example in an area where there plenty more just like that, but AmeriGas and some of its peers do illustrate the point that looking for a lengthy history of dividend growth is a rewarding strategy in any industry and utilities are no exception.

Click HERE to learn more about the Dividend Genius - Smart Research on High-Yield Stocks
Where Albert Einstein Would Invest Today...

The notorious genius Albert Einstein once claimed that "compound interest is the Eighth Wonder of the World."

Now you can get a similar compounding effect with a certain category of stocks.

These dividend-paying, high-yield stocks are cash-compounding machines, with provable total annual returns of 22%, 59%, 93%, 208% and 213% with low risk.

Click HERE to see where the great Albert Einstein would invest in today's market.

For more information and archived issues, visit http://www.globalprofitsalert.com

Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

Would you like to republish this article? Global Profits Alert issues can be republished, as long as the republished issues contain the name of the author(s) and the following short paragraph:

This information was brought to you by GlobalProfitsAlert.com, a publication of Trippon Financial Research, Inc. GlobalProfitsAlert.com publishes information on Investing in the China stock market and emerging markets, dividend stock and income investing, exchange traded funds (ETFs), green energy stocks, technology stocks, global market trends and other investment information. To view archives or subscribe, visit http://www.globalprofitsalert.com.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.