Want Safety AND Income? This Sector Has Both…
With the country teetering on the brink of default – and 10-year U.S. Treasury bonds yielding a paltry 2.88% – where can investors turn for safety and yields?
Answer: utilities stocks.
Yeah, I know… investing in utility companies inspires about as much enthusiasm as watching paint dry.
But the fact is, since this volatile third quarter got underway, they represent one of the best-performing sectors in the S&P 500. While almost every other sector is down anywhere between 1% and 7% so far this month, utilities stocks have held steady.
And such safety during a falling market is no accident, either.
I’ll explain why below – and give you two ultra-safe utilities stocks to consider…
Boring Stocks… But Ultra-Reliable Demand and Solid Yields
Why do utilities stocks represent the safest, most defensive option out there?
Simple. Because no matter what’s happening in the world, consumers don’t have a choice but to keep the power on and the water running.
In other words, utility companies benefit from reliable, steady demand. And ultimately, that translates into predictable profits and the ability to pay a dividend to investors through thick and thin.
Such rock-solid demand is particularly beneficial during a stagnating economy, which is definitely what we have at the moment. Last Friday, the Commerce Department said the economy grew at a 1.3% annual rate during the second quarter (analysts had expected 1.8%), which capped off the weakest six-month period since the recession ended.
In addition, the current low interest rate environment makes utilities stocks even safer and more attractive.
You see, most utility companies operate with relatively high debt levels. So when rates are low, they pay less in interest expenses and have more money left over to pay dividends.
Add it all up and utilities stocks are ideally suited for times like these. Here are two you should consider owning today…
Two Standout Performers in the Crowded Utility Sector
~ Southern Co. (NYSE: SO): Founded in 1945 and headquartered in Atlanta, Southern serves approximately 4.4 million customers with 42,000 megawatts of generating capacity in Alabama, Florida, Georgia, Mississippi and the Carolinas.
The big plus for Southern is that it’s based in a region where population growth continues to outstrip the rest of the country. And because new customers represent the cheapest way for a utility company to grow, that should ultimately help Southern maintain its impressive track record of rewarding shareholders with an average annual return of about 16% for the past 30 years.
The company spits out an annual dividend of $1.89 per share – equal to a 4.7% yield. And the fact that it’s paid a dividend for 255 consecutive quarters underscores its quality and safety.
~ Aqua America (NYSE: WTR): Forget oil… water is going to be the most important commodity for the next 100 years.
Not only does every human need to gulp down 2.5 quarts per day to stay healthy, countless industries (including the critical agriculture sector) require massive amounts of it, too.
For instance, building a single car takes 39,000 gallons. Processing a ton of sugar cane into sugar requires 28,000 gallons. And making a single barrel of beer uses 1,500 gallons.
That means Aqua America – one of the largest publicly traded water utilities in the United States – boasts ever steady demand for its products. And since the water industry is extremely fragmented, the company also benefits from ample growth opportunities via acquisitions.
The company pays an annual dividend of $0.62 per share – equal to a 2.9% yield. And like Southern, Aqua America has a long and proud history of paying quarterly dividends. In fact, the trend stretches back a highly impressive 65 years.
Bottom line: Utility stocks may be unglamorous, but they provide indispensable services and benefit from super steady demand. And in these challenging and uncertain times, there’s no better option for safety and reliable income.
Ahead of the tape,