Our stock screen ranks utilities by yield, looking for companies that are likely to keep raising their dividends.
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Utility stocks have traditionally been a haven for income investors looking for nice yields.
Although the sector has been a laggard recently–the XLU Sector SPDR Fund (ticker: XLU) has a one-year return of about 20%, versus 34% for the S&P 500 –yield remains a key part of the group’s appeal.
For this screen, Barron’s started with the utility stocks in the S&P 500, and then ranked them by yield. We then looked for companies that raised their dividends in 2020 versus 2019 levels and are expected to increase their payouts this year as well.
Utility Players
These utilities, all members of the S&P 500, have attractive yields and solid dividend growth prospects.
| Company / Ticker | Recent Price | Dividend Yield | Market Value (bil) | YTD Return |
|---|---|---|---|---|
| Edison International / EIX | 58.65 | 4.5 | 22.3 | -4.5% |
| Consolidated Edison / ED | 76.3 | 4.1 | 27.0 | 8.9 |
| Duke Energy / DUK | 105.68 | 3.8 | 81.3 | 18.8 |
| NiSource / NI | 25.06 | 3.5 | 9.8 | 12.2 |
| Entergy / ETR | 112.56 | 3.4 | 22.6 | 15.9 |
Prices and returns as Sept. 3; other data as of Sept. 7.
Source: FactSet
Just picking the five highest-yielding stocks in the sector wasn’t enough. High yields can presage dividend cuts.
Barron’s also spoke with John Bartlett, president of Reaves Asset Management and a co-portfolio manager of the Reaves Utility Income Fund (UTG) for some guidance.
We came up with these five stocks: Edison International (EIX), which recently yielded 4.5%; Consolidated Edison (ED), 4.1%; Duke Energy (DUK), 3.8%; NiSource (NI), 3.5%, and Entergy (ETR), 3.4%.
“On a risk-adjusted basis, utilities are a pretty good place,” says Bartlett.
He points out the 10-year U.S. Treasury Note was recently yielding a little under 1.4%, far below those of most utility stocks. “Utilities are fine here,” Bartlett says. “And we don’t start to get worried about utility valuations until we get meaningfully higher levels of interest” rates.
Of the five stocks in our screen, Edison International, based in Southern California, is the only one that’s down this year, in that case minus 4.5%.
Bartlett, however, calls the electric utility “a perfectly worthy story”—though a shorter-term concern is the California fire season. He likes the company’s long-term prospects, and expects the dividend to continue to grow.
Consolidated Edison, based in New York City, faces a challenging regulatory setting, he says, and doesn’t have the growth that some utilities do. But Bartlett believes the dividend looks safe.
Duke Energy, he says, is fine. “There’s really nothing wrong with Duke.”
Through Sept. 3, the Charlotte-based utility’s stock had returned about 19%, tops among the five companies in this screen.
NiSource, based in Indiana, has returned about 12% this year. It’s a fully regulated utility with about 3.2 million natural gas customers and another 500,000 electric customers across six states.
Entergy, based in New Orleans, took a big hit from Hurricane Ida, which knocked out power in much of that region. But the stock has held relatively steady, gaining 0.7% since Aug. 27–compared with about 0.1% for the utilities select SPDR.
Besides Louisiana, the company’s utility footprint covers Mississippi, Arkansas and Texas.
The stock “has given a little back because of the hurricane,” says Bartlett, who maintains the company’s dividend is safe.
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com