Bonds are not paying enough interest and you’re looking for « safer » dividend stocks to compensate? Utilities stocks may be the solution for your portfolio. But, don’t think that all utilities are safe investments. They are still companies and can still leave you with a sour taste in your mouth. This is why we will look into the world of utilities.
First; Why Invest in Utilities?
The utility sector is particularly interesting in the US for dividend investors. This is the realm of steady and high dividend yields. In this sector, it’s not hard to find a 4% dividend stock (there are also a few great 5% stocks too!). The utility sector is known to maintain a dividend payout ratio around 50% (electricity) and 60%-70% (water) and it is useful to follow these guidelines. The sector will bring stability and push your overall portfolio dividend yield higher.
As the current stock market is put under pressure, utility stocks can be a great way to diversify your portfolio while adding more stability. Don’t expect incredible growth from this sector, remember, we are not talking about the techno boom, we are talking about companies supplying electricity and water. As people don’t make their utility bills explode because they suddenly need to consume more electricity, there is more of a steady increase due to demographics, inflation as well as bad weather from time to time. 2013 was particularly cold in the USA (trust me, in Canada too!) and this is why utility stocks were able to follow the bullish parade.
Dividend Stocks Rock Premium Newsletter covered 8 utilities showing strong metrics. I’m sharing here with you 1 stock analysis that scored very high in our ranking.
Wisconsin Energy (WEC) Rock Solid Ranking 78pts
Wisconsin Energy Corporation’s principal business is providing electric and natural gas service. Based in Milwaukee, Wisconsin, it serves more than 1.1 million electric customers in Wisconsin and Michigan’s Upper Peninsula and more than 1 million natural gas customers in Wisconsin through its utility subsidiary, We Energies. Other subsidiaries are We Power, which designs, builds and owns electric generating plants; and Wispark, LLC, which develops and invests in real estate, industrial/office buildings and urban redevelopment projects. The company was founded in 1981.
It has been chosen in my best 2012, 2013 and 2014 dividend stocks. Each year, WEC has proven it deserves its place each time. Management has made a strong commitment to pay down debts and respect a 55% debt to equity ratio.
Both EPS and dividend payouts are heading in the same direction… up!
Its leadership position in its market allows Wisconsin Energy to benefit from a constant income which has led WED to increase its dividend payout several times over the past 5 years (the dividend doubled from 2007 to 2012). A new share repurchase program announced in December along with higher expectations from management should be enough to push WEC a little further. I like utility stocks like WEC as you can count on a solid performance year after year.
Unfortunately, all good things are not forever. Regulations may slowdown income growth in the future and could hurt WEC. Since it is currently trading at a relatively high P/E ratio (18.72), I would prefer to buy IDA than WEC at the moment (especially since WEC is up another 13% ytd!).
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