Seeking Safe Returns? 4 Utilities For Dividend Investors

Just as the name suggests, dividend investors are those who look for a steady flow of income from their investments. Naturally, utility stocks are been a darling for dividend investors because of their ability to pay regular dividends as well as to hike the same at regular intervals.

Utility stocks enjoy a reputation for safety, especially when markets are volatile, due to the regulated nature of their business that gives their performance a high level of certainty. They also benefit from the domestic orientation of their business, which shields them from foreign currency translation issues — a major headwind for many other industries.

Utility operators generate more or less stable earnings unless there are severe factors disrupting their operations. These operators in turn reward their shareholders through the payment of sustainable dividends and share buybacks. This was particularly evident during the economic crisis of 2008–2009 when utilities continued to pay dividends without fail.

These companies provide basic services like electricity, gas and water, which is why they can never go out of business. This is in fact the most fundamental strength of utilities and their ability to boost shareholders’ value through consistent dividends makes them all the more attractive.

Adding to the inherent positives, housing starts rose 2.1% this July in the U.S. to a seasonally adjusted annual rate of 1,211,000, beating the consensus estimate of 1,175,000. This is sure to have a favorable impact on residential demand for utility services.

Moreover, volatility in the markets caused by the Brexit referendum and lower-than-anticipated growth in some global markets has driven investors to seek refuge in the utility space. These stocks are often regarded as a “bond substitutes” and consistently performing utilities continue to be a “safe haven” for jittery investors.

Picking the Right Utilities

We have selected four utilities boasting a good Zacks Rank and a current dividend yield higher than 3% — better than the S&P 500 average of 1.74%.

In addition, these utilities’ five-year historical dividend yield is higher than 3%. Historical dividend yield indicates the consistence of dividend distribution from these utilities.

DTE Energy Company (NYSE:DTE) is a holding company with subsidiaries engaged in the regulated and unregulated energy businesses. The company is directing capital investments toward renewable generation, utility infrastructure and environmental compliance assets.

DTE Energy has a Zacks Rank #2, along with a current dividend yield of 3.12% and a five-year historical dividend yield of 3.76%. Long-term earnings growth of the company is 5.80%.

Pinnacle West Capital Corporation (NYSE:PNW) provides electricity services (wholesale or retail) across the state of Arizona through its subsidiaries. The company is involved in the generation, transmission and distribution of electricity from coal, nuclear, gas, oil and solar sources.

The company has a Zacks Rank #2, along with a current dividend yield of 3.31% and a five-year historical dividend yield of 4.01%. Long-term earnings growth of the company is 4.05%.

Northwest Natural Gas Company (NYSE:NWN) is involved in the storage and distribution of natural gas in the U.S.

The company has a Zacks Rank #2, along with a current dividend yield of 3.07% and a five-year historical dividend yield of 3.96%. Long-term earnings growth of the company is 4.00%.

SCANA Corp. (NYSE:SCG) , together with its subsidiaries, engages in the generation, transmission, distribution and sale of electricity to retail and wholesale customers in South Carolina.

The company has a Zacks Rank #2, along with a current dividend yield of 3.23% and a five-year historical dividend yield of 4.03%. Long-term earnings growth of the company is 5.27%.

To Sum Up

With no near- term indication of an interest rate hike, these capital-intensive utilities continue to enjoy the benefits of low interest rates and pass on the same to investors through buybacks and steady dividends.

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