Regulated Utilities Companies Offer Solid Dividends

Here are four regulated utilities companies with yields topping 4%.

Apr 11, 2014 at 2:18PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some regulated utilities companies to your portfolio but don't have the time or expertise to hand-pick a few, the db X-trackers Regulated Utilities ETF (NYSEMKT: UTLT) could save you a lot of trouble. Instead of trying to figure out which regulated utilities companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on regulated utilities companies, sports a relatively low expense ratio -- an annual fee -- of 0.45%. The fund is very small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This regulated utilities companies ETF is too young to have a sufficient track record to assess. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why regulated utilities companies?
The utilities industry is "defensive," as its offerings remain in demand no matter what the economy is doing. Better still, many utility stocks pay substantial dividends. Regulated utilities companies, meanwhile, sometimes operate as monopolies in their regions and have to apply to regulators for rate increases. Nonregulated utility companies tend to face more competition, but are also more free to pursue higher profits via their strategies. Thus they're riskier but might deliver higher returns, too. The companies in this ETF have substantial regulated operations, but may also engage in nonregulated operations, too.

The past year was unkind to many regulated utility companies. FirstEnergy Corporation (NYSE:FE) sank 22.4% and yields 4.2%. It has been retiring coal-powered plants and shedding some hydropower assets, while investing in transmissions and improved grids. The company's fourth quarter featured a 35% dividend cut, along with revenue well below expectations and earnings topping expectations. Its coal operations have been hurting it, along with low prices and regulatory costs.

Consolidated Edison (NYSE:ED) gave up 6.4% and yields 4.6%. Analyst Paul Freemont at Jefferies upgraded the stock in February from underperform to hold and upped his price target by almost 30% to $58, suggesting it's a bit undervalued -- though the stock has recently been trading near $55. It's not likely to be a fast grower, but it does offer steady income, and a recovering economy can help. Its fourth quarter featured revenue roughly flat, but earnings per share up 13%.

Southern Company (NYSE:SO) shed 2.5% and yields 4.6%. It has invested more than $5 billion in "clean coal" facilities and is building nuclear plants, too. In its latest quarter, Southern Company topped expectations for both revenue and earnings. Some worry about Southern's debt load, but others see it as quite manageable, spread over many years, and supported by steady profits. Bulls have had high hopes for its innovative Kemper coal gasification plant, but the project has been delayed by cost overruns and labor issues.

Pacific Gas & Electric Co. (NYSE:PCG) did better than many regulated utilities companies, only dropping 1.4% while yielding 4.1%. It hasn't increased its payout since 2010, though. That's the year of a pipeline explosion in California that killed eight people for which the company is expecting to face criminal charges and major costs. Pacific Gas & Electric returned to profitability in its fourth quarter, though its earnings were below expectations, and it is expected to report its first quarter results on May 1.

The big picture
If you're interested in adding some regulated utilities companies to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Selena Maranjian has no position in any stocks mentioned. The Motley Fool recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers