In the aftermath of the stock market’s two most gut wrenching years since the Great Depression, it’s no secret that investors want stability and current income. For some, that means utility stocks, which typically pay outsized dividends and are historically one of the less volatile sectors of the equity market.
While Standard & Poor’s Equity Research expects only “modest” gains from utility stocks in 2010, their collective dividend yield has risen year to date to about 4.7%, and several utilities are expected to raise their dividends this year. Within the utility sector, S&P Equity Research has a “positive” outlook for independent power producers, and a “neutral” outlook for the electric, natural gas, and multi-utility industries.
Independent power producers are cutting their debt levels through sales of assets and new shares, says S&P Equity Research analyst Christopher Muir. As economic growth recovers, the amount of spare generating capacity available to meet peak demand will decline, forcing prices higher.
There are currently about a dozen exchange traded funds (ETFs) targeting the utility industry both in the United States and internationally, and another dozen investing in specialty areas, such as nuclear energy, as well as more diversified infrastructure funds that devote large portions of their portfolio to utilities.
We chose three funds based on their S&P ranking, historical performance, and portfolio holdings.